1.1.4 Scarcity, Choice and the Allocation of Resources
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.
Test yourself on this topic
Six original multiple-choice questions on scarcity, choice and opportunity cost, written to AQA Paper 3 Section A style, with full worked answers.
Practice Questions: 1.1.4 Scarcity, Choice and Opportunity CostPast paper questions on this topic
Two questions on Scarcity, Choice and the Allocation of Resources from the AQA A-Level papers, 2019–2020, 15 to 25 marks. Each one links straight to the page of the official mark scheme where its answer begins.
Past Paper Questions: 1.1.4 Scarcity, Choice and Opportunity CostRevise this topic with flashcards
Flip through the AQA microeconomics deck filtered to this topic — definitions, diagrams and chains of reasoning, with your progress saved on this device.
Revise 1.1.4 with flashcards