Scarcity and opportunity cost represent two interlinking concepts in economics as companies must often choose among scarce resources. In most cases, economic resources are not completely available at all times in unlimited numbers. Therefore, companies must make a choice about which resources to use during production. The opportunity cost represents the alternative given up when choosing one resource over another. For example, scarcity and opportunity cost have a direct link because companies may use a lower quality but more available resource for producing goods.
Choice is among the most common activities in an economy. Both individuals and companies must decide what items to use when filling the needs and wants inherent in all parties in an economy. Scarcity can force choices as resources begin to deplete. For example, a lumber manufacturer may need to make a choice about which timber to harvest as some species become unavailable. This is the starting point between scarcity and opportunity cost in economic terms.
Opportunity cost carries the classic definition of selecting the next best alternative. For example, a furniture manufacturer desires mahogany lumber to make a bedroom set. Due to the scarcity at local lumber manufacturers — that is, the lack of sufficient mahogany wood for sale — the furniture manufacturer must use cherry wood instead. Therefore, the opportunity cost is the mahogany wood the furniture manufacturer desired in the first place. Scarcity and opportunity cost can typically be the biggest drivers in choices made due to the inability for a company to continue producing certain goods in a long-term manner.
Scarcity and opportunity cost are also present in the lives of individuals in a free market economy. For example, a consumer desires a brand new personal computer with a specific operating system and software components. The only problem, however, is the personal computer of choice is not widely available, making the item scarce in...
Please join StudyMode to read the full document