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A RECOGNIZING SCARCITY AS THE REASON FOR
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STUDYING ECONOMICS
R Objectives:
Learning
By 1.
the end of the session the students will be able to:
 explain how applied economics can be used to solve economic problems.
LE
SS Targets:
Lesson
O targets are skills and knowledge you want to be able to accomplish at the end of the session.
Lesson
Read the lesson targets carefully and keep them as we go through in today’s session.
N
 I can identify scarce resources.
1.
 I can make rational decision in utilizing scarce available resources.
2
DISCUSSION
Concept Notes:

Economics is concern with the wise allocation of scarce resources. If only resources were abundant,
and human wants are limited, economic problems would not exist. But such is not the case.
Resources are limited and wants are unlimited; thus, the existence of economic problems. We have to
economize to make the most of what we have in order to satisfy our needs and wants.

When one makes a choice, there is always an alternative that has to be given up. A student who buys
a book with his limited allowance gives up the chance of eating out or watching a movie. The value
of this alternative given up is referred to as “opportunity costs.” When we make a decision to buy
Good A, we are in effect, making the decision not to buy good B.

MAIN ECONOMIC PROBLEM: SCARCITY

Can you think of any societies in which all wants are satisfied?
Most societies would prefer to have better health care, higher quality education, less poverty, a
cleaner environment, etc. Unfortunately, there are not enough resources available to satisfy all of
these goals.

To see how this concept works, think about your own situation, then answer the following questions:
 Do you have enough time available for everything that you wish to do?
 Can you afford every item that you would like to own?
You’re correct! I know you answered NO. Economists argue that everyone wants more of something.
This problem of limited resources and unlimited wants also applies to society as a whole. Thus,
economists argue that the fundamental economic problem is scarcity. Since there are not enough
resources available to satisfy everyone’s wants, individuals and societies have to choose among
available alternatives. An alternative, and equivalent definition of economics is that economics is
the study of how such choices are made.

Remember, the opportunity cost allows us to understand the real cost of our choices according to the
best possible alternative we have to sacrifice. Opportunity costs are often ignored as we tend to
concentrate on the benefits and direct costs of our decisions, without taking into account what we are
giving up.

Example:
I only have extra 150 pesos from my weekly allowance. I only have enough money to buy a shirt but
I also want to watch a movie. Now I have to make a choice whether to buy a shirt or watch a movie.
If I choose to buy a shirt, my opportunity cost is the movie I wanted to watch. If I watched the movie,
my opportunity cost is the shirt I wanted to buy.

Applied Economics | 1
Again, SCARCITY: society doesn’t have enough resources to produce all the things people given up
when making a decision.

NOTE:

 Whatever you chose depends on the opportunity cost of the alternative…what you were
willing to sacrifice. Time spent; convenience also has an opportunity cost.

Applied Economics | 2