Microeconomics Scarcity, Choice & The Allocation of Resources



ECONOMIC PROBLEM: Is scarcity which results from limited resources and unlimited wants 

- Scarcity is refers to limitations – limited goods or services, limited time, or limited abilities to achieve the desired end result

- It means that choices have to be made how scarce resources are allocated between different uses

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Opportunity Cost

Def: The benefit lost from the next best alternative forgone 

              e.g. if the Government spends £10bn on a new road, the opportunity cost is the money which could be put towards funding for the NHS


  • An Indivudial - Saving for a house deposit vs going on holiday
  • A School - Buying more resources vs getting more staff
  • A Business - Reinvesting profits vs increasing wages 
  • The Government - Giving schools more funding vs giving the NHS more funding
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Economic Agents

  • Producers - Who makes the product 
  • Consumers - Who gets the product
  • Government - Decides who gets the product / what is made

Opportuinty cost is important to economic agents because they can't have both options because of finite resources, so a choice has to be made for where resources are best spent

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