Microeconomics 4.1.1.4 Scarcity, Choice & The Allocation of Resources

ECONOMIC PROBLEM: Is scarcity which results from limited resources and unlimited wants 

- Scarcity is refers to limitations – limited goods or services, limited time, or limited abilities to achieve the desired end result

- It means that choices have to be made how scarce resources are allocated between different uses

Def: The benefit lost from the next best alternative forgone 

              e.g. if the Government spends £10bn on a new road, the opportunity cost is the money which could be put towards funding for the NHS

EXAMPLES OF OPPORTUNITY DECISIONS:

• An Indivudial - Saving for a house deposit vs going on holiday
• A School - Buying more resources vs getting more staff
• A Business - Reinvesting profits vs increasing wages 
• The Government - Giving schools more funding vs giving the NHS more funding

• Producers - Who makes the product 
• Consumers - Who gets the product
• Government - Decides who gets the product / what is made

Opportuinty cost is important to economic agents because they can't have both options because of finite resources, so a choice has to be made for where resources are best spent