Economics: All Topics

Scarcity: human wants are unlimited, but the resources available to satisfy them are finite. Choices must therefore be made about how to use resources.

There are insufficient resources to satisfy all human wants, so not everything people want can be produced or consumed.

Resources available in limited quantities, such as land, workers, machinery and raw materials.

People continually desire more goods and services than can be supplied with the available resources.

Something essential for basic survival or well-being, such as food, safe water or shelter.

A desirable but non-essential good or service, such as a luxury holiday or designer handbag.

The decision about how scarce resources are distributed between alternative uses.

Producing one combination of goods uses resources that cannot simultaneously be used for every other desired good. Individuals, firms and governments must prioritise some uses over others.

Needs are essential, while wants are additional desires. Scarcity means choices may have to be made between meeting basic needs and satisfying less essential wants.

What to produce (which goods and how many), how to produce (which resources and methods), and for whom to produce (who receives the output).

Its budget and productive resources are limited, so spending more on one service, such as hospitals, restricts what can be devoted to other services, such as schools.

A business has limited workers, machinery and materials; using them to make one product reduces the resources available to produce another.

A consumer has limited income relative to wants and must decide which goods or services to buy rather than purchasing everything desired.

The land is finite and has competing uses. The city must choose how to allocate it because it cannot devote the same land fully to both housing and the park.

The discovery increases available resources but does not make them unlimited. Human wants can still exceed what the economy can produce, so choices remain necessary.

Machines, labour and materials are limited. Diverting them to school desks reduces the capacity to make office desks, so the firm must decide which output to prioritise.

The next best alternative forgone when a choice is made.

Consumers, producers and government.

Limited resources have competing uses. Choosing one use means giving up the next best alternative use of those resources.

Although many alternatives may be rejected, opportunity cost refers specifically to the most valuable alternative that was not chosen.

A consumer compares the benefit of a purchase with the benefit of the next best use of the same money or time; a high opportunity cost may lead to a different choice.

Using scarce resources for one product prevents the firm from using them for its next best alternative product or activity, influencing production choices.

Funding one programme uses resources that could fund an alternative. The government weighs what would be forgone, such as schools when prioritising hospitals.

It is the value or benefit of the next best alternative forgone. It may involve time, output or a missed activity, even when no money changes hands.

The forgone earnings and other value of the shift, if working was the next best alternative to revision.

The cakes that could have been produced using the flour, assuming cakes were the next best alternative.

The hospital project and the benefits it would have provided, not simply the amount paid to construct the railway.

The cinema trip, because it is the next best alternative forgone; the restaurant meal is not the opportunity cost.

The textbook and the benefit it would have provided; the opportunity cost is not automatically the £40 jacket price.

Potato production worth £4,000, assuming potatoes are the next best alternative use of the field. This is the monetary value of the opportunity cost in this example.