Sample Answer (1) – Interlinked Concept of Scarcity, Choice and Opportunity Cost.

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The inter-linked concepts of scarcity, choice and opportunity cost form the foundation of the chief economic problem. Scarcity refers to the excess of wants over the limited availability of resources; this is indeed a worrying notion and appears in daily and practical forms. Perhaps the most chronic one being back in 1970 when due to the scarcity there was a colossal shortage of gasoline. Scarcity is best depicted by points outside the PPC that cannot be achieved due to restricted resources. However, it is notable that the scarcer a good is, the greater its market price hence, economic value. It is interesting to note that goods and services are not just scarce; they have competing, or as often known, alternative uses. The same land that was used to build a school; may have been utilized better by having a hospital built on it. This introduces us to the necessity of making choices. In an economy where resources are not only restricted, but have alternative uses, choices are inevitable. Thus the most often asked questions, “What to produce”, “how to produce?” which gives us the vast variety of choices involved in resource allocation best explained by the traditional “guns and butter argument” as well as deciding between the best possible production methods and last but not the least, “For whom to produce?” Existence of scarcity and need for choice leads to opportunity cost. It is preeminently describes the sacrificed alternative as the cost of the choice made. Every choice involves a tradeoff; and every choice has an opportunity cost in terms of the benefit gained from what could have been chosen instead. A more practical example of this is compromising on current living standards by choosing to produce capital goods for future potential
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