1.1 Scarcity, choice and opportunity cost

Scarcity is the fundamental economic problem: wants are unlimited relative to the finite resources available to satisfy them.

Because land, labour, capital, time and enterprise have alternative uses, choosing one use prevents some other use. Scarcity exists for individuals, firms and governments, even when a particular good is abundant.

A government with a fixed health budget cannot fund every hospital, treatment and prevention programme at once.

Scarcity does not mean a resource is rare or that everyone is poor; it means supply is limited relative to competing wants.

Economic choice is the decision about which scarce resource use to pursue. Every choice selects one option and leaves at least one alternative less funded or forgone.

Individuals choose consumption or saving, firms choose products and methods, and governments choose public priorities. The best decision depends on objectives, constraints and expected consequences.

A firm can use a factory line for bicycles or electric scooters; producing more of one leaves less capacity for the other.

Choice is not limited to buying goods: deciding not to act, to save or to regulate is also an allocation decision.

Opportunity cost is the value of the next-best alternative given up when a choice is made. It is forward-looking and depends on the alternatives actually available.

The chosen option is not itself the opportunity cost. Identify the best rejected use of the same scarce resource, then compare its benefit with the chosen use.

If a student spends Saturday revising instead of working a paid shift, the opportunity cost is the wages from the best available shift, not the revision itself.

Opportunity cost is not always a cash payment and is not the sum of every rejected option.

Resource allocation is the process of deciding which goods and services are produced, which production methods use scarce inputs, and who receives the resulting output.

A market may coordinate choices through prices and incentives; governments may allocate through rules, taxes, public provision or planning. Each method involves trade-offs and distributional consequences.

A city deciding between more buses and more roads is answering what to produce and how to use land, labour and capital; fares and access determine for whom the service is available.

Efficiency and fairness are different allocation questions: an allocation can maximise output while leaving access unequal.