<1.1 SCARCITY, CHOICE & OPP COST>

"SCARCITY refers to the problem that arises when an economy's SCARCE ('LIMITED') PRODUCTIVE RESOURCES are unable to satisfy the UNLIMITED WANTS of its population."

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"...following on from our definition of scarcity, we can see how this situation compels owners of these scarce resources (Private or Public) to make CHOICES about which needs to satisfy, and which needs to forgo."

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"When these decisions are made, there will inevitably be a choice that is forgone ('given up') at its expense, and this can therefore be considered the cost paid for making a decision."

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"In other words, the cost of choosing to use the scarce resources to satisfy the wants of A is not using the scarce resources to satisfy the wants of B. This cost is referred to as the OPPORTUNITY COST."

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"Whoever manages these resources, from private individuals to a dictator, they all need to find answers to THREE very important questions."

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"1. WHAT TO PRODUCE?" "Because we cannot produce everything, we need to decide what to produce and in what quantities. We have to choose, for example, whether to produce lots of goods and services, such as food, clothing, and vehicles, to improve our standard of living, or whether we need to produce lots of military hardware to improve our defenses. 

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"2. HOW TO PRODUCE?" "This question arises since resources are scarce in relation to unlimited wants; we need to consider how resources are used so that the best outcome arises. We need to consider how we can get the maximum use out of the resources available to us."

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"3. FOR WHOM TO PRODUCE?" "Because we cannot satisfy all the wants of all the population, decisions have to be taken concerning how many of each person’s wants are to be satisfied. On a broad level we need to decide whether everyone is going to have a more or less equal share of what is produced or whether some will have more than others."