Economics: Understanding Scarcity

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Questions and Answers

What is the concept of opportunity cost related to?

Financial concept

Alternative uses

Real concept (correct)

Economic goods

Opportunity cost is considered as a negative concept.

False

What is the value of the next best alternative forgone called?

Opportunity cost

The problem of choice arises due to the __________ of resources.

scarcity Signup and view all the answers

When does opportunity cost become zero?

When there are unlimited resources Signup and view all the answers

Match the following concepts with their descriptions:

Opportunity cost = The value of the next best alternative forgone Economic cost = Another name for opportunity cost Real cost = Another name for opportunity cost Scarcity = The problem of choice arises due to this Signup and view all the answers

Opportunity cost can be expressed by anyone.

False Signup and view all the answers

What are the factors related to opportunity cost?

The concept of opportunity cost, the individual, and external cost Signup and view all the answers

What is scarcity considered in terms of economics?

A central economic problem Signup and view all the answers

Scarcity is a total absence of resources.

False Signup and view all the answers

What are the two main characteristics of scarcity?

At a given period of time, human wants are unlimited, and resources used to produce goods and services to fulfill human wants are limited. Signup and view all the answers

The goods produced with scarce resources are called _______________________ goods.

economic Signup and view all the answers

Why is scarcity considered the central problem of economics?

It is common to every society Signup and view all the answers

The shortage of goods prevailing at the market is an example of scarcity.

False Signup and view all the answers

Match the following terms with their descriptions:

Scarcity = A relative concept of limited resources compared to human wants Economic goods = Goods produced using scarce resources Choice = The process of selecting one alternative from many possible uses Signup and view all the answers

What is the significance of choice in the context of scarcity?

Choice is necessary because scarce resources have alternative uses, and individuals must select one alternative from many possible uses. Signup and view all the answers

Study Notes

Scarcity

Scarcity is the central economic problem common to every economy, characterised by a relative shortage of resources compared to human wants.
It does not mean the total absence of resources, but rather that resources are limited in relation to human wants.
There are two main characteristics of scarcity:
- Human wants are unlimited at a given period of time.
- Resources used to produce goods and services to fulfil human wants are limited at a given period of time.

Economic Goods and Efficient Resource utilisation

Goods produced with scarce resources are called economic goods, and their supply is limited.
Using resources economically is considered efficient utilisation of resources, but this does not solve the problem of scarcity as long as human wants remain unlimited.

Choice and Alternative Uses

Scarcity leads to the problem of choice, where people have to choose one alternative from many due to the existence of alternative uses of resources.
Choices are made by households, business firms, and the government in various ways.
The problem of choice arises due to:
- Scarcity of resources.
- Alternative uses of resources.

Opportunity Cost

Opportunity cost is the value of the next best alternative forgone when selecting one alternative from many.
It is also known as real cost or economic cost.
Opportunity cost is a positive concept that applies only to economic goods.
Factors related to opportunity cost include:
- It is a real concept, not a financial concept.
- It is connected to the individual and can be expressed only by the person who made the choice.
- There is an external cost associated with opportunity cost.

Special Situations

There are certain situations where the opportunity cost becomes zero:
- When there are unlimited resources (existence of non-economic goods),.
- When there is an absence of alternative uses (there are no other options).
- When there are unemployed resources, they can be utilized further.