How Are Choices Forced When Wants Are Unlimited?
- Even when a resource seems abundant, it is still finite when compared with what people could potentially use.
- This is the central idea of scarcity.
- Where poverty is a condition where people lack sufficient income or access to essentials, scarcity is broader.
- It exists in every society, including wealthy ones, because there is always a limit to time, labour, materials, and technology.
Scarcity
The idea that available resources (land, labour, capital, entrepreneurship) are limited and unable to satisfy unlimited human needs and wants.
- A country may have plenty of land, but not all land is fertile; it may have many workers, but not all have the right skills; it may have money, but not enough to fund every possible project.
- Think of scarcity like a school timetable.
- Even if your school has many teachers and classrooms, you cannot schedule every student to take every subject at the same time.
- Limited slots force trade-offs.
Opportunity cost is the price of choosing
Opportunity Cost
Opportunity cost is the value of the next best alternative that is forgone when a decision is made to pursue one option over another. It reflects the benefits that could have been obtained if a different decision or investment had been chosen.
- Because we can't do everything, every decision has an opportunity cost.
- If a government spends more on road-building, it may have to spend less on healthcare.
- If a firm uses steel to make cars, it cannot use that same steel to make trains.
- Opportunity cost matters because it makes choices visible.
- It encourages better questions, such as:
- What are we giving up?
- Who benefits and who loses?
- Are we using resources in a way that matches our priorities?
- Opportunity cost is not always money.
- It can be time (studying instead of working), land (a park instead of apartments), or environmental quality (production instead of clean air).
What Are Factors of Production?
Factors of production
All resources or inputs used to produce goods and services.
- They are essentially the inputs scarcity limits.
- The four factors of production are:
- Capital: human-made resources used to produce other goods and services (machines, tools, buildings, infrastructure).
- Entrepreneurship: the ability to organise production, take risks, and innovate by starting and running businesses.
- Labour: human work and effort (physical and mental).
- Land: all natural resources (soil, water, forests, minerals, energy sources).
- Scarcity can affect any of these factors:
- A drought limits land (usable water, crops).
- An ageing population can reduce labour.
- Low investment may reduce capital.
- Strict rules or instability can discourage entrepreneurship.
- Remember the four factors of production as "CELL":
- Capital
- Entrepreneurship
- Labour
- Land
How Does the Production Possibilities Frontier Show Trade-Offs?
Production Possibilities Frontier (PPF)
A curve showing the maximum possible output combinations of two goods or services that can be produced with available resources and technology, assuming resources are used efficiently.
- One common way to visualise scarcity is the production possibilities frontier (PPF), sometimes called the production possibilities curve (PPC).
- Imagine a country can only produce two goods, such as books and computers. If it uses all its resources efficiently, it can produce combinations along its PPF, such as:
- many hamburgers and few laptops, or
- many hamburgers and few laptops.
What points on, inside, and outside the PPF mean
- Points on a PPF (on PPC₁ or PPC₂) are productively efficient: all resources are fully used, and producing more of one good requires giving up some of the other.
- Points inside the PPF (inside PPC₁) are inefficient: resources are underutilised (for example, unemployment or wasted capacity), so output could increase without a trade-off.
- Points between PPC₁ and PPC₂ were previously unattainable, but become attainable after economic growth.
- The outward shift from PPC₁ to PPC₂ represents economic growth, caused by factors such as technological progress, increased resources, or improvements in productivity.
- Points outside PPC₂ remain unattainable with current resources and technology.
Why the PPF is curved
- In many realistic cases, the PPF is curved outward because resources are not equally good at making every product.
- If you shift more and more resources into producing computers, you may have to take resources that are less suitable for that task, so the opportunity cost rises.
- When explaining movement along a PPF, always use opportunity cost language: "To increase laptops from 25 to 30, the economy must give up some books."
- This links scarcity directly to the diagram.
How a PPF can shift
- A PPF can move outward when an economy gains:
- more resources (more labour, more land, more capital), or
- better technology (producing more with the same inputs).
- It can shift inward after shocks such as war, natural disasters, or long-term environmental damage.
What Questions Do Economic Systems Answer Regarding Scarcity?
- The three key questions it answers are:
- What to produce? (food, education, weapons, renewable energy)
- How to produce? (labour-intensive or capital-intensive, sustainable or polluting)
- For whom to produce? (who receives goods and services, and how income is distributed)
What Social and Environmental Consequences Does Scarcity Include?
- Because resources are limited, production choices often create trade-offs beyond economics:
- Producing goods can generate pollution, which uses up environmental capacity (clean air and water are scarce too).
- Funding one public service can reduce funding available for another.
- Scarce resources can increase tensions between groups over "who gets what."
- This is why governments frequently intervene in markets (for example, through taxes, subsidies, regulation, or public provision).
- Intervention is often justified when markets do not allocate resources in ways society considers fair, sustainable, or efficient.
- Define scarcity and give one example from everyday life.
- For a PPF, what does a point inside the curve show?
- Explain opportunity cost using a government spending example.