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Hey there! Have you ever had to choose between two things you really wanted? Let's discover why we cannot have everything we want, and how we make those tough choices!
In economics, we have a big word for a simple problem: scarcity. Scarcity means that our resources are limited, but our wants are unlimited. There is simply not enough time, money, or stuff for everyone to get everything they desire.
Because of scarcity, we are forced to make choices. When you choose one option, you must give up the next best option. The valuable thing you give up is called your opportunity cost.
Let us break this down with a real-world example. Imagine you have exactly ten dollars. You want to buy a movie ticket, but you also want a new book. Both cost ten dollars. You cannot buy both because your money is limited. Your choice to buy the ticket means the book is your opportunity cost.
Maya has two hours of free time after school. She wants to practice soccer to get ready for her game, but she also wants to study for her science test. How can Maya analyze her scarcity problem to make the best choice?
- Identify the scarce resource: Maya's resource is time. She only has two hours of free time.
- List the competing wants: She wants to practice soccer, and she wants to study for her science test. Each activity takes up her full two hours.
- Compare the two choices: If she chooses soccer, she will be physically ready but might do poorly on the test. If she chooses science, she will be mentally ready for the test but might play worse in the game.
- Identify the opportunity cost: If Maya chooses to study for her science test, her opportunity cost is the soccer practice she missed.
- Make a balanced decision: Maya can also choose to split her resource, spending one hour on soccer and one hour on science to reduce her opportunity cost!
