HomeSS 1EconomicsUnderstanding Basic Economic Concepts: Wants, Scarcity, and Opportunity Cost”

Understanding Basic Economic Concepts: Wants, Scarcity, and Opportunity Cost”

BASIC CONCEPTS OF ECONOMICS

CONTENT

  1. Concepts of Wants and Scarcity
  2. Choice and Scale of Preference
  3. Opportunity Cost

Concept of Human Wants

Definition of Wants
Wants refer to the countless goods and services that people desire to consume. In economics, a “want” is something that individuals are interested in having, even if they may not currently have the money or willingness to pay for it. Wants can be physical items, such as cars, houses, or televisions, or services like those provided by a doctor, driver, or lawyer.

Characteristics of Human Wants

  1. Tangible Goods – Physical items like food, clothing, and electronic devices.
  2. Intangible Services – Services provided by professionals, like medical and legal services.

Human wants are insatiable because the resources available to satisfy them are limited, meaning they are scarce. These wants can also be referred to as ends, desires, aims, or objectives.

Scarcity

In economics, scarcity is defined as the limited supply of resources relative to their demand. Scarcity occurs when the availability of a resource cannot meet the current level of demand based on existing resources.

Key Points on Scarcity

  • Scarcity doesn’t necessarily mean a shortage of resources; even when goods or services are available in abundance, they are still considered scarce if people lack the means to purchase them.
  • The issue of scarcity is fundamental to economics; without it, there would be no need for the study of economics as it drives the necessity for choice and prioritization.

Evaluation Questions

  1. Write a short note on human wants.
  2. Explain scarcity in economics.

Choice

Since human wants are unlimited and resources to satisfy them are limited, choices must be made. Choice is the act of selecting one option from a set of alternatives. This concept is essential because every decision made by individuals, firms, and governments implies a choice, given limited resources.

Aspects of Choice

  1. What to Produce – Deciding which goods or services to create.
  2. How to Produce – Choosing the methods or resources for production.
  3. When to Use Resources – Determining the timing of resource use based on availability.

Scale of Preference

A Scale of Preference is a list that ranks an individual’s wants according to their importance or urgency. It helps consumers prioritize and make choices about which wants to satisfy first.

Importance of Scale of Preference

  1. Helps arrange human wants systematically.
  2. Assists in making informed choices.
  3. Ensures efficient use of limited resources.
  4. Provides a clear view of priority needs.
  5. Helps consumers maximize the utility of their resources.

Opportunity Cost

Definition of Opportunity Cost
Opportunity cost is the value of the next best alternative that is foregone when a choice is made. Also known as real cost or true cost, it represents the trade-off between competing options.

Example
If Mr. Audu decides to buy a television instead of a radio, the opportunity cost of choosing the television is the radio he could have bought instead.

Opportunity cost is relevant to individuals, firms, and governments in making decisions on resource allocation.

  • For individuals – It helps them prioritize and manage limited resources.
  • For firms – Guides resource allocation towards profitable activities.
  • For governments – Assists in deciding which projects to fund with limited revenue, such as choosing between infrastructure and social services.

Evaluation Questions

  1. Define Opportunity Cost.
  2. Explain the concept of scarcity.

Reading Assignment

“Amplified and Simplified Economics for SSS” by Femi Longe, pages 5-7.

General Evaluation Questions

  1. Define Economic Goods.
  2. Give two examples of Economic Goods.
  3. Differentiate between Economic and Non-Economic Goods.
  4. Does the concept of opportunity cost apply to West African countries?
  5. Explain the difference between opportunity cost and money cost.

Weekend Assignment

Multiple Choice Questions

  1. Opportunity cost is defined as:
    • (a) Money cost
    • (b) Cost of production
    • (c) Real cost
    • (d) Variable cost
  2. The most basic concern of the economist is to:
    • (a) Create human wants
    • (b) Satisfy all human wants
    • (c) Redistribute income
    • (d) Allocate scarce resources to satisfy human wants
  3. Scarcity in economics means that resources are:
    • (a) Needed to satisfy human wants
    • (b) Never enough to share among producers
    • (c) Unlimited to meet essential wants
    • (d) Limited relative to wants
  4. Choice is necessary because resources are:
    • (a) Limited
    • (b) Scarce
    • (c) Available everywhere
    • (d) Infinite
  5. Scarcity in economics refers to:
    • (a) A period of production
    • (b) Hoarding of goods
    • (c) Limited resources relative to needs
    • (d) Monopolization of supply

Section B Questions

  1. Define scarcity in economics.
  2. Define opportunity cost and provide examples:
    • i. A shirt purchased for 1000 Naira instead of a pair of shoes.
    • ii. Oranges planted on a farm realizing N50,000 instead of mangoes that could yield N60,000.

Evaluation Questions

  1. The concept of wants in economics refers to goods and services that are ________ for consumption.
    a) Unwanted
    b) Limited
    c) Desired
    d) Unavailable
  2. In economics, wants are considered ________ because they can never be fully satisfied.
    a) Satiable
    b) Limited
    c) Insatiable
    d) Complete
  3. ________ is the term used to describe limited resources relative to unlimited wants.
    a) Surplus
    b) Scarcity
    c) Overproduction
    d) Abundance
  4. When resources are limited and cannot meet all wants, it creates a need for ________.
    a) Choice
    b) Waste
    c) Surplus
    d) Oversupply
  5. A list that ranks an individual’s needs by importance is called a ________.
    a) Priority list
    b) Scale of preference
    c) Budget
    d) Demand schedule
  6. The value of the next best alternative forgone is known as ________.
    a) Real cost
    b) Total cost
    c) Opportunity cost
    d) Market price
  7. In economics, ________ refers to the act of choosing one option over another.
    a) Demand
    b) Choice
    c) Scarcity
    d) Opportunity
  8. The concept of scarcity is central to economics because it helps in understanding ________.
    a) Unlimited resources
    b) Allocation of resources
    c) Wealth accumulation
    d) Budgeting only
  9. Goods and services are classified as scarce when they are ________ in supply relative to demand.
    a) Unlimited
    b) Constant
    c) Limited
    d) Overproduced
  10. Opportunity cost is often referred to as the ________ cost.
    a) Marginal
    b) True
    c) Total
    d) Nominal
  11. The concept of opportunity cost helps individuals to ________ their resources effectively.
    a) Ignore
    b) Misuse
    c) Allocate
    d) Waste
  12. ________ is the selection among different alternatives when resources are scarce.
    a) Demand
    b) Scale
    c) Opportunity
    d) Choice
  13. An individual’s most preferred wants are placed at the top of the ________.
    a) Scale of preference
    b) Opportunity list
    c) Expenditure
    d) Resource allocation
  14. When Mr. Audu buys a car instead of a motorcycle, the motorcycle becomes the ________ of the car.
    a) Demand
    b) Scarcity
    c) Opportunity cost
    d) True cost
  15. ________ helps firms to allocate resources to the most profitable activities.
    a) Scale of preference
    b) Scarcity
    c) Choice
    d) Opportunity cost

Class Activity Discussion

  1. What are human wants?
    • Human wants are the various goods and services people desire for consumption.
  2. Why are human wants considered insatiable?
    • Because the resources available to satisfy them are limited, and new wants continuously emerge.
  3. What is scarcity?
    • Scarcity is the limited availability of resources relative to the unlimited nature of wants.
  4. Is scarcity the same as a shortage?
    • No, scarcity means resources are limited in general, while a shortage is a temporary lack of supply.
  5. Why is scarcity important in economics?
    • Scarcity is fundamental as it drives the need for decision-making and allocation of resources.
  6. What is opportunity cost?
    • Opportunity cost is the value of the next best alternative foregone when making a decision.
  7. Give an example of opportunity cost.
    • Choosing to buy a smartphone instead of a tablet; the tablet is the opportunity cost.
  8. What is a choice in economics?
    • Choice refers to selecting one option among various alternatives due to limited resources.
  9. How does scarcity lead to choice?
    • Scarcity limits resources, so people must make choices on how best to use them.
  10. What is a scale of preference?
    • It is a list that ranks a person’s wants in order of importance.
  11. Why is a scale of preference important?
    • It helps individuals prioritize and allocate resources efficiently.
  12. How does opportunity cost relate to choice?
    • Opportunity cost is the result of making a choice since selecting one option means forgoing another.
  13. Why do economists study scarcity?
    • Economists study scarcity to understand how to allocate limited resources to satisfy unlimited wants.
  14. What role does opportunity cost play for firms?
    • It helps firms decide where to allocate resources to maximize profit.
  15. Why is economics sometimes called a social science?
    • Because it studies human behavior and decisions regarding resource allocation.

Evaluation

  1. What is the definition of opportunity cost in economics?
  2. List two examples of human wants.
  3. Explain the concept of scarcity and its importance.
  4. How does scarcity influence economic choice?
  5. What is the purpose of a scale of preference?
  6. Give two reasons why human wants are considered insatiable.
  7. Differentiate between economic goods and non-economic goods.
  8. How does opportunity cost apply to government decision-making?
  9. Explain why choice is necessary in economics.
  10. What is the significance of opportunity cost to an individual?

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