A Level Economics (9708) Notes – 1.1 Scarcity, Choice and Opportunity Cost

SCARCITY

• Definition: Scarcity refers to the basic economic problem where resources are limited but human wants are unlimited.
• As a result, choices must be made and opportunity cost arises.

Basis of Scarcity:

• Economic resources (land, labour, capital, enterprise) are limited.
• Human wants are unlimited and recurring.
• Not all wants can be satisfied at the same time.
• Therefore, choice becomes necessary.

Scarcity faced by economic decision makers:

1	Individuals	Limited income but many wants.
	Example:	A student chooses between a mobile phone and exam guide books.
2	Families	Limited household budgets.
	Example:	A family chooses between a holiday and home renovation.
3	Firms	Limited factors of production.
	Example:	A firm produces cars instead of bikes.
4	Government	Limited tax revenue.
	Example:	More spending on healthcare instead of education

OPPORTUNITY COST: Definition: Opportunity cost is the next best alternative that is sacrificed when a choice is made.

Link between scarcity, choice and opportunity cost:

Scarcity leads to choice, and every choice involves an opportunity cost.

Examples of opportunity cost:

1	Individual	Buying a mobile phone instead of textbooks.
2	Household	Renovating a house instead of going on a holiday
3	Firm –	Producing laptops instead of tablets.
4	Government	Spending on defence instead of healthcare.

Exam conclusion: Because resources are scarce, every economic choice involves an opportunity cost.