Scarcity, choice, opportunity cost, production

and firms
• scarcity and choice
• opportunity cost
• resource allocation
• firm
• market
• industry
 Scarcity, choice, opportunity cost, production
and firms
• Scarcity: To the economist, scarcity is the idea that no society ever has sufficient
resources to meet all the actual and potential demands for those resources. So,
it has to make choices

• Choice: Scarcity and choice go hand in hand. Given that individuals, firms,
governments and society in general are unable to meet all their demands, it
follows that choices have to be made concerning how the available resources
should be used.

• Opportunity cost: As everyone is aware, making a choice between alternatives

inevitably involves a sacrifice: what might broadly be called a ‘cost
 Scarcity, choice, opportunity cost, production
and firms
• Resource allocation
– This basic problem of resource allocation poses
three major dilemmas for any society:
• What should the available resources be used for?
• How best should the resources be used?
• For whom should the goods or services be produced
and distributed?
 Scarcity, choice, opportunity cost, production
and firms
• Firm : The concept of firm (or enterprise) implies deliberate organisation for
productive purposes; it evokes notions of ownership and control, direction and
coordination, and
processes of decision making and risk taking.

• Market: A market is an exchange mechanism which brings together buyers and sellers

• Industry: An industry is normally defined according to the technical and physical

characteristics of the output it produces; it comprises all businesses producing goods
within the particular category under investigation (e.g. the brewing industry; the car
industry).
Scarcity, choice, opportunity cost, production
and firms
Scarcity, choice, opportunity cost, production
and firms

https://ww
w.youtube.
com/watch
?v=O6XL__
2CDPU&t=2
s
 Scarcity, choice, opportunity cost, production
and firms
• Conclusion:
• A primary aim of the firm in a capitalist economy is to be profitable by producing
and/or selling a good or service for more than it costs the organisation to make or
acquire.

• In this regard, business decision makers have to make choices about what products to
produce, where to acquire the necessary resources, whether to provide a service in-house
or buy it in, what prices to charge customers, how to respond to competitor decisions, what
markets to operate in and so on.

• what shapes business behaviour and the broader environment in which that behaviour
occurs, economists make use of an array of concepts, models, theories and analytical
techniques to help us understand the day-to-day processes of production and consumption.