Aquinas College Economics Department

The Problem

Economics seeks to answer the basic problems of what to produce, how should it be

produced and for who

ECON1

Aquinas College Economics Department

Limited Resources

In an economy there are limited resourcesThere are not enough resources to meet the needs and wants for everyoneThis is known as scarcity

Therefore choices have to be made!

Aquinas College Economics Department

Opportunity Cost

Due to the unlimited wants, each choice has a cost associated with itWhen using a resource for one choice you will forfeit another choice as you can’t use those resources for another object

This is known as opportunity cost

Aquinas College Economics Department

Example

£100m

New Hospital

New College

Take government spending for example

The government has £100 million to spend and it can either spend it on a new hospital or a new college. Should the government choose to build a hospital, the opportunity cost would be a new college. Likewise should they choose to build a college then the opportunity cost is a hospital

Aquinas College Economics Department

Example 2

£3

Coffee

Lunch

You have £3

You can either buy a coffee at Starbucks for £3 or you can buy lunch at McDonalds.

If you choose the coffee the opportunity cost is lunch.

The opportunity cost is only the next best alternative. Opportunity cost does not consider a broad range of alternatives.

Aquinas College Economics Department

Types of Good

Economic Good

Goods which involve opportunity cost as they are scarceMost goods are economic goods even air!

Free Good

Goods which have no opportunity cost