The Concept of Scarcity in the Study of EconomicsIntroductionScarcity implies that human beings always want more than what nature is able to provide. In other words, the resources that nature provides are not enough to satisfy all human wants. Scarcity affects us both as individuals and as economies. As individuals, scarcity of such resources as finance, time and skills limits our ability to do and have what we want all the times. For an economy like our country, scarcity of such resources as manpower, machinery and mineral resources fixes a maximum on quantities of goods and services that the economy can produce.
Scarcity of resources calls for individuals to make choices on what wants are to be satisfied and the ones to be left unsatisfied. When we as individuals or economies opt for more of something, scarcity compels us to take less of another commodity. This implies that economic activities would be non existent if there was no scarcity and hence no choice. When scarcity and choice occurs, costs arise (Iannaccone 2008, p. 1464). The cost of a particular choice is the option forgone by opting to satisfy the want.
For example, the cost for a student who chooses to be in class would be the enjoyment that would have been received if the student went for a tour instead. People make choices by comparing the benefits of alternative choices. The option with the maximum benefit is chosen. Therefore, the cost of choosing option A would be the sacrifice undergone in rejecting option B. The opportunity cost can also be said to be the sacrifice involved in rejecting the next best alternative.
This paper attempts to analyze how scarcity affects both individuals as well as the economy en bloc specifically as it relates to opportunity cost. Every day, individuals are faced with tough choices on how to allocate their scarce resources. This is because the choices have their associated costs and benefits. Therefore, the individual has to weigh the benefits of choosing any given choice. A rational individual will always choose the alternative that has the greatest benefit. However, each choice made has its associated opportunity cost. Examples of choices that people make due to scarcity are on how to spend their time, money, where to live etc. Rational persons consider all the costs of making their choices.
A good example is the choice made by students to go to school. In this choice, there are direct costs involved. Direct costs include the amount of school fees paid by the students and all out of pocket payments made by the students to acquire various goods and services related to their schooling. On the other hand indirect costs paid by the students are the opportunity costs and include the things that the students would forego by deciding to attend school.
If the students had made the choice not to attend school, they would have preferred to invest the money in an investment that would have yielded interest. The student could also have been employed and hence earn wages. Therefore for the student’s opportunity costs would include lost wages interest, lost rent and profit. It should be noted that for the students, the benefits of staying at school were more compared to those of abstaining from school.