CAIE A-Level Economics

## Scarcity and choice The fundamental economic problem is **scarcity**: the resources available to produce goods and services (land, labour, capital and enterprise) are limited, while human wants are, for practical purposes, unlimited. Because not every want can be met, a choice has to be made about which ones will be. Scarcity is not the same as shortage. A shortage is a market in which quantity demanded exceeds quantity supplied at the current price, and it can disappear when the price adjusts, whereas scarcity never disappears because resources remain limited however rich a society becomes. Choices have to be made at every level: - Individuals (households) choose how to spend limited income and limited time, for example between buying a laptop and saving, or between working extra hours and studying. - Firms choose how to use limited funds, workers and machinery, for example whether to expand an existing factory or open a new site. - Governments choose how to use limited tax revenue and borrowing, for example between spending more on healthcare and cutting taxes. ### Opportunity cost Every choice means giving something up. The **opportunity cost** of a decision is the value of the next best alternative that is forgone. It is not the total of everything that could have been done instead, only the single best alternative, and it is not always measured in money. Time, leisure and satisfaction have opportunity costs too. A student who spends Saturday afternoon revising…