Scarcity, Choice and the Production Possibilities Frontier o The Economic Problem of Scarcity o Choice o Opportunity Cost
o Introduction to Production o The Factors of Production
The Production Possibilities Frontier o Introduction to Production Possibilities Frontier (PPF) o Assumptions of the Production Possibilities Frontier o Characteristics of the Production Possibilities Frontier(Summary)
The Economic Problem of Scarcity
The fundamental problem of economics is that we have unlimited wants, but limited resources to satisfy these wants. When wants exceed the resources available we have scarcity.Scarcity occurs because human wants exceed the limits of available resources. Economics deals with the basic fact that scarcity exists in our everyday lives and in our economy. Resources such as raw materials are in finite supply and must be allocated to their best use. Virtually all resources are scarce, meaning that more of them are desired than is available. Economics is concerned with the way people have to make choices in order to overcome the problems of scarcity.
Given the presence of scarcity, choices must be made as to how resources are allocated. Our lives are filled with a wide range of choices regarding the use of limited personal funds. Advertisers constantly inform consumers of their consumption possibilities and the choices available. The same principle applies for the economy as a whole. We elect politicians who work with policy makers to allocate government expenditures. Together they make difficult choices concerning how taxes will be spent.
The relevant cost of any decision is its opportunity cost - the value of the next-best alternative that is given up. This will mean that if we choose more of one thing, we will have to have less of something else.
Economists use the term opportunity cost to explain