SCARCITY &

OPPORTUNITY
COST
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Scarcity
⊸ Scarcity is the basic economic
problem. Because of scarcity, an
individual in particular (and the
society in general) has to choose
how to utilize the resources to
satisfy the unlimited wants of
people.
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How do we know that something is scarce?

⊸ People are willing to sacrifice in
order to get it.
⊸ Oftentimes this means there is a
price. The higher the price, the
scarcer it is.
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3 DISTINCTIVE CATEGORIES OF SCARCITY

Demand-induced scarcity Supply-induced scarcity Structural scarcity

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Demand-induced
scarcity happens when
the demand of the
resource increases and the
supply stays the same.
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Supply-induced scarcity
happens when a supply is
very low in comparison to
the demand.
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Structural scarcity
occurs when part of a
population doesn't have
equal access to resources
due to political conflicts
or location.
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How can we solve the problem of scarcity?

⊸ Societies can deal with scarcity by
increasing supply.
⊸ Another method the governments use to
solve the problem of scarcity is by raising
prices.
⊸ Rationing
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Opportunity Cost
⊸ The opportunity cost of a particular activity
is the value or benefit given up by engaging
in that activity, relative to engaging in an
alternative activity.
⊸ Opportunity costs represent the potential
benefits that an individual, investor, or
business misses out on when choosing one
alternative over another.
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Example of Opportunity Cost

Option A: Invest excess capital in the stock
market to potentially earn capital gains.

Option B: Invest excess capital back into the

business for new equipment to increase
production efficiency.
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How to properly evaluate opportunity

cost?

To properly evaluate opportunity

costs, the costs and benefits of
every option, available must be
considered and weighed against
the others.
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Importance of Opportunity Cost

 Can allocate scarce resources
properly
 We can choose the best possible
option
 It makes a better decision
 We can control supply & other
scarce resources