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The fundamental economic problem is one of 'scarcity' - Leaving Cert Economics - Question 1 - 2013
Question 1
The fundamental economic problem is one of 'scarcity'. Explain this concept.
Worked Solution & Example Answer:The fundamental economic problem is one of 'scarcity' - Leaving Cert Economics - Question 1 - 2013
Step 1
Scarcity Explained
Answer
Scarcity refers to the situation in which the supply of resources or factors of production is limited, while the demand for these resources is virtually unlimited. This discrepancy arises because human wants are infinite, but the resources available to satisfy those wants are finite. Therefore, individuals and society must make choices regarding how to allocate these limited resources effectively.
For instance, consider land, labor, and capital as resources. If a society has a limited amount of land, it must decide how to utilize that land—whether for agriculture, housing, or industrial development. Each choice made signifies a trade-off, as using resources for one purpose limits their availability for others, leading to the concept of opportunity cost. Essentially, the opportunity cost is the value of the next best alternative forgone when a choice is made.
Thus, scarcity necessitates prioritization, decision-making, and trade-offs, central to the study of economics.
Step 2
Opportunity Cost
Answer
Opportunity cost is a fundamental concept arising from scarcity. When resources are allocated to one use, the benefits that could have been received from choosing a different use are lost. For example, if a farmer decides to plant wheat instead of corn, the opportunity cost is the yield lost from not planting corn. This metric is crucial in helping individuals and societies evaluate their options and make informed decisions based on limited resources.