a) Why does choice arise in economics? Use one example or more to discuss the concept of “rational choice” and opportunity cost. b) What do you understand by the law of demand? Pick a product and discuss two factors, which in your opinion would cause the demand curve to the left. Can you think of two other factors which would shift the supply curve of your product to the right?
According to Sloman (2007), economics is a social science that studies human behaviour including individuals, businesses and government in the context of market, where the trade takes place. In our daily life we all have to make choice and decide which desire we will satisfy and which one we will leave unsatisfied. The reason why is because there are unlimited wants but limited resources which is known as scarcity. Scarcity limits us both as individuals and as a society. As individuals we want more than we can have due either to income, time or ability. As a society, limited resources such as land, labour or machinery determine a maximum amount of good and services that can be produced.
Therefore before to take any decision we need to think sensibly which involves weighting up the cost and benefits of any activity. It is known as rational choice. The opportunity cost of something is the best thing you must give up to get it. It means that the production or consumption of one thing involves the sacrifice of alternatives.
The law of demand represents the relationship between price and consumption and state, if the price of a good rises, the quantity demanded will fall and vice versa. Therefore there are two reasons for this law: the substitution effect is when the price of a product rises, consumers will tend to buy its substitute and the income effect is when the price of a good rises and consumers cannot afford it so the demand for that good decrease.
The demand curve shows the relationship between the quantity demanded of...