4 min readโขjune 18, 2024
Jeanne Stansak
Isabela Padilha Vilela
Jeanne Stansak
Isabela Padilha Vilela
is the basic problem in economics in which society does not have enough resources to produce whatever everyone needs and wants. Basically, it is unlimited wants and needs vs. limited resources. Scarcity is faced by all societies and economic systems. ๐ Since we are faced with scarcity, we must make choices about how to allocate and use scarce resources.ย ย
Economics is the study of how individuals, firms, and governments deal with scarcity. As a result of facing scarcity, all members of a society have to makeย choices in an effort to manage our resources in the most efficient way possible. The choices we make are known asย .ย ย
(Note: For a good to beย scarceย it must be both limited and desirable)ย
Microeconomics is the study of how individuals ๐ฅ, households ๐ , and firms ๐ญ make decisions and allocate resources. For example, whether a high school graduate chooses to go to college or directly into the workforce is a microeconomic decision.
Macroeconomics is the branch of economics that studies the behavior and performance of the entire economy instead of just the smaller economic actors. Macroeconomics deals with issues such as .ย
Economists are trying to figure out, within an economy, the following questions: What to produce? How to produce? Forย whomย to produce?ย
To produce in an economy it is required to recognize the limited supply of the 4 production factors:
In order to decide what to produce and how, different societies have organized themselves based on these factors:ย
**Trade-offsโ**each of the alternative choices that you gave up when making a decision. For example, you walk into the cafeteria for lunch at school and you have the option of pizza, a cheeseburger, or chicken sandwich for lunch. If you choose to have pizza, then the cheeseburger and chicken sandwich are your trade-offs๐
**โ**this is the value of the next best alternative when making a choice. Going back to the example of what to have for lunch, if you choose pizza, but get to the front of the line and the last slice of pizza was taken by the kid in front of you, you choose a cheeseburger instead. The cheeseburger is your opportunity cost because it is the next best alternative if your first choice is unavailable ๐
The table below shows two possible combinations of trucks and cars that can be produced given a set amount of resources. A company or country can move between the two possibilities to best meet their needs. When they move from combo A to combo B, they give up 6 million trucks. That is their opportunity cost for this decision. If they were producing at combo B and moved to combo A, they would give up 8 million cars (opportunity cost).
Combo A | Combo B | |
Trucks | 8 million | 2 million |
Cars | 2 millionย | 10 million |