Question

Write a 2-3 paragraph essay discussing the nature of scarcity and its relationship with opportunity cost.

Answer 1

Scarcity is the central concept in the study of economics. Individuals demand products to satisfy their needs. Those products are elaborated using certain resources that are scarce hence, limited. Therefore, economics is the science that studies the allocation of products for consumer satisfaction given that the supply of resources is scarce.

The opportunity cost is defined as the cost of the best alternative that has been rejected when making a decision in an environment of scarcity. For example, considering that money is the scarce resource, a consumer can only afford to either buy one orange or two pears. He knows that the orange would provide a higher satisfaction to him and buys it. Therefore, the rejected alternative, the two pears, consitute the opportunity cost. If there was no scarcity, this consumer would have been able to purchase the two options, not only the most preferred.