Economics as the Study of Scarcity, Choice and Opportunities Cost

 

1.     Economics as the Study of Scarcity

Scarcity is the condition of insufficiency where the human beings are incapable to meet or fulfill their wants in a sufficient manner. The reason behind this is human wants are unlimited and all human want to have more and superior goods than they have. On the other hand, resources that satisfy human wants are limited or scarce. Scarcity is the central problem of Economy. For example: A land can be used to construct building or to make a beautiful park or to raise an agricultural crops. So it is very essential to think how limited resources can be used alternatively to satisfy some wants of people to get maximum satisfaction as possible. Therefore, economics is concerned with the allocation and alternative uses of these resources in order to fulfill the human wants with maximum satisfaction.

2.     Economics as the Study of Choice

Choice is the process of satisfaction from available limited resources. It emerges because of the following reasons:

a.      Resources are limited.

b.     Human wants are unlimited.

c.      Resources can be allocated to alternative uses.

For example: The economy has to decide how much of the resources are to be used for the development of industries and how much for the development of agriculture.

The problem concerning efficient allocation of resources to different uses is called economic problem or the problem of choice. Choice may lead to maximum satisfaction of the member of the society. In the choice making process, we assume that the decision taker is rational. A rational decision taker tries to attain the maximum satisfaction from the available resources. For this, he ranks all the possible alternatives in order of preferences by evaluating cost and benefit and choses the alternative highest in the ranking.

1.     Economics as the Study of Opportunity Cost

Resources being scare we cannot produce everything we want. Therefore, we are forced to make a choice. If we choose to produce more of one thing, it will be necessary to produce less of other thing. The commodity that is sacrificed is the real cost of the commodity that is produced and it is opportunity cost. For eg: Suppose a producer can produce a TV set or a computer with the resources at this disposal. If he decides to produce a TV set and not computer then the opportunity cost of producing TV set is the computer sacrifice as a result. If a several opportunities are giving up for producing a particular commodity then opportunity cost is the value of the next best opportunity foregone. Thus, opportunity cost is not the sum total of all the alternatives but the next best alternative forgone. The concept of opportunity cost has become very popular in the recent years. The modern analysis of the cost-benefit analysis is based on the theory of cost opportunity only.