Question

Define the followingterms: a. scarcity b. opportunity cost c. economics d. want e. resource f. production possibilities frontier g. rationing device

Short answer

Scarcity refers to the limited availability of resources. Opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen. Economics is the study of resource allocation. A 'want' is a desire for a particular item. A resource is a factor used to provide goods or services. The production possibility frontier shows the maximum possible output combinations of two goods or services. A rationing device is a method to distribute goods and services when demand exceeds supply.

Step-by-step solution

Defining Scarcity

Scarcity refers to the basic economic problem of having human wants and needs that far exceed available resources. In other words, there are limited goods for unlimited wants.

Defining Opportunity Cost

Opportunity cost is the cost of foregoing the next best alternative when making a decision. It's the value of the opportunity lost, which could be understood as the benefit one could have received from an alternative choice.

Defining Economics

Economics is the social science that studies how individuals, governments, and nations make choices on allocating resources to satisfy their unlimited wants and needs, and how they manage and distribute these resources.

Defining Want

In the context of economics, a 'want' is a desire for a particular good or service. While needs are basic necessities like food and shelter, wants are things we would like to have, such as a new phone or a vacation.

Defining Resource

A resource, in economic terms, is any factor that can be used to produce goods and services that people want. Resources can be natural like water, or they can be human like labor, or they can be man-made like capital.

Defining Production Possibilities Frontier

The production possibility frontier (PPF) is a curve that shows the maximum achievable levels of two goods or services that can be produced while using available resources effectively and efficiently.

Defining Rationing Device

A rationing device is a method for distributing goods, resources, or services when demand exceeds supply. Examples of rationing devices include prices, first-come-first-serve, and lottery systems.

Key concepts

Scarcity

Scarcity is a fundamental concept in economics that describes the situation where human wants and needs exceed the availability of resources. This means that there are not enough resources to go around to satisfy everyone’s desires. Imagine you have a limited piece of cake, but many friends; some will have to miss out. This is scarcity in an extremely simplified form.

Scarcity arises because we live in a world with limited resources like land, water, and time. Yet, our desires for goods and services are almost endless. This ever-present imbalance compels individuals and societies to make choices about how to best use their limited resources. These choices are vital, as they determine the allocation of what we have, to meet the endless demands placed upon them.

• Human wants are unlimited.
• Resources such as time, land, and money are limited.
• Decisions must be made on how to allocate resources efficiently.

Therefore, scarcity forces us to prioritize and ration, making it a core area of study in economics.

Opportunity Cost

Opportunity cost is a pivotal concept that delves into the idea of making choices. Every choice we make has a cost, which typically involves giving up the next best alternative. If you decide to spend your evening studying for a test, the opportunity cost might be the movie night with your friends that you forego.

Understanding opportunity cost helps individuals and businesses alike to evaluate options and guide decision-making. It is the comparison of the benefit of one choice against another. In a broader sense, it reflects the trade-offs faced by societies as they decide how to utilize resources.

• Represents the value of the forgone alternative.
• Guides better decision-making by assessing trade-offs.
• Applies to everyday life and business decisions alike.

Opportunity costs are a natural consequence of scarcity, forcing people to prioritize their choices by weighing potential gains and losses.

Production Possibilities Frontier

The Production Possibilities Frontier (PPF) is a graphical representation showing the maximum quantity of two different goods that can be produced within a given period of time, given limited resources. Imagine a frontier or boundary that illustrates the trade-offs between two distinct goods or services in an economy.

The curve shows combinations that are achievable when resources are used efficiently. Points along the PPF indicate optimal production levels, whereas points inside the curve suggest that resources are not being used to their full potential. By contrast, points outside the curve are unattainable with existing resources. This visualization helps in understanding production efficiency and economic growth potential.

• Illustrates trade-offs between the production of two goods.
• Highlights efficient and inefficient resource usage.
• Helps in visualizing potential economic growth.

The PPF is a versatile tool that can help demonstrate concepts like opportunity cost, efficiency, and potential economic expansion, making it a cornerstone in economic theory and decision-making.