Answer to Question #74847 in Macroeconomics for CHARLES MFORTOW

Question

1. Neoclassical economics defines Economics as the study of how best to allocate a finite amount of resources among an infinite number of (potential) uses. Show that the concepts of Scarcity, Choice, and Opportunity Cost arise logically from this definition.

Answer 1

As the finite amount of resources has to be used for an infinite number of potential goals, this inevitably causes a shortage of resources to meet all possible needs, which is the essence of the concept of Scarcity. Scarcity makes the necessity of decision what needs have to be satisfied using the limited resources. Thus it stipulates the concept of Choice. Making choice causes rejection of some benefits in favour of others, that forms the concept of Opportunity Cost, which means the value of a unit of one good, expressed in units of another good, which had to be abandoned when using the same resources.