Written by
Eliot King— First-Class BSc (Hons) Economics, University of Bath · 6+ years teaching A-Level Economics · Edexcel A, Edexcel B, AQA and OCR
Specification Coverage: AQA unit 1.1.4 Scarcity,
Choice and the Allocation of Resources - students must learn the
basic economic problem of scarcity, choice and the allocation of
resources, and how this leads to opportunity cost.
The Problem of Scarcity
The Economic Problem is a problem of scarcity.
Scarcity:when there are
finite resources (e.g., land, labour, capital)
but infinite human wants and needs.
Because of scarcity, choices must be made about
how to allocate these limited resources among competing uses.
Economics is the study of how these choices are made.
Opportunity Cost
Opportunity cost:the value
of the next best alternative foregone when
making an economic decision.
Purpose: It is a central concept that measures
the real cost of any choice, represented by the
loss of the next most desirable good or service that could have
been produced or consumed with the same resources.
Examples of opportunity cost:
Consumer: The opportunity cost of buying a
new video game is the cinema ticket you can no longer afford.
Producer: The opportunity cost of a firm
using its factory to produce cars is the bicycles it could
have produced instead.
Government: The opportunity cost of increased
spending on healthcare is reduced spending available for
education or defence.