Basic economic concepts

Scarcity and Choice

Opportunity cost

Human wants

Unlimited wants

Resourcesused to produce goods / services to satisfy human wants

limited in supply

scarce: i.e. their quantities are insufficient to satisfy all human wants

Types of resourcesNatural resources: e.g. sunshine, rain, crude oil

Human resources: labour service

Man made resources: e.g. machines, equipments

ScarcityMeaning: Resources are insufficient to satisfy ALL human wants

A relative concept: we want more than we have

Basic economic problem in human societies

Do they face scarcity problem?United States

Hong Kong

North Korea

Africa

Is sea water scarce?Is it fixed in supply?

Do we want more sea water than we have?

Sea water is not scarce

Are they scarce?Sunshine in Thailand

A free sample of candies given at a shopping centre

Fresh air in a caf with many smokers

Sand in the desert

Are they scarce?Sunshine in Thailand

A free sample of candies given at a shopping centre

Fresh air in a caf with many smokers

Sand in the desert

CompetitionWe compete for the use of limited resources

2 ways of competition Price competitionNon price competition e.g. waiting, examination, lucky draw, violence

Making choicesWhich restaurant will you go for lunch?

What would you like to study at university?

What will you buy with $100? CD or dress ?

Which girl (boy) will you marry?

What is economics?It studies how we allocate the limited resources to satisfy unlimited wants

Opportunity cost

Opportunity cost is the highest-valued option forgone

Choice among options

Rank options according to a persons preference order

Option 1 going to cinemaOption 2 going to sing karaoke Option 3 sleeping at home

What is the cost of going to the cinema?

Going to sing karaoke (highest-valued option forgone)

We cannot choose option 2 and option 3 at the same time, we only forgo option 2 when we select option 1

Choosing a career / jobOption 1 being an actress ( $10 Mn. p.a.)Option 2 being a nurse ( $ 0.5 Mn. p.a.).Income forgone being an actress < income forgone being a nurse Cost being an actress < cost being a nurse

Choose the job with the lowest opportunity cost

More elderly found in queuesBefore festivals, wait for gifts (rice, mooncakes, red envelopes etc)In public clinics

Income forgone by elderly < income forgone by working persons Cost of waiting by elderly < cost of waiting by working persons

Full cost Option 1 going to a 1 hour concert and pays $200 for a ticketOption 2 working in Parkn as a salesman earning $30 per hourOption 3 working as a tutor earning $100 per hour

Full cost of attending the concert = price of ticket + income forgone (highest-valued option forgone)Full cost of attending the concert = $200 + $100 = $300

Complimentary ticketsGoing to Hong Kong DisneylandTicket : Free of chargeMoney spent on food, transport..=$200Income forgone = $500

Full cost of going for Disneyland (HK) =$700

Is Time a cost?Price of a mobile phone =$1 800Search = one evening Income forgone while searching = $200Opportunity cost of buying the mobile phone is $2 000

Uses of a flatMrs Lo has the following options for her flat in Shatin :

Option 1 Owner occupiedOption 2 VacantOption 3 Lease with a rental income $50 000 per year

Suppose she chooses to live in her flat, what is her cost of living in that flat?

Social CostBuilding a new railway $100 millionCreating pollution nearby (e.g. cutting trees, noises) $5 millionSocial cost of building highway= private cost + external cost = $105 million

Miss Cheng could spend two hours at a concert ortutoring a student at $70 per hour. She could use the time on painting instead and earn a total of $170. If the price of the concert ticket is $250, what is the opportunity cost of her choice of going to the concert?A. $410B. $420C. $430D $440

Mary has accumulated 20 Coupons.What is the opportunity cost to her if she uses them to exchange for one camera?A.Cup B. BagC. Cup and BagD. Cup or Bag

No. of couponsGifts51520CupBagCamera

Which of the following statementsabout scarcity is true?A. Once a choice is made, the problem of scarcity is solved.B. A good is scarce if not everyone has it.C. Scarcity means unlimited human wants.D. Both rich people and poor people face the problem of scarcity.Answer:D

A. (1) and (4) onlyB. (1) and (3) onlyC. (2) and (3) onlyD. (2) and (4) onlyAnswer:C. (2) and (3) only