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Lecture 1

ECON202 Lecture 1: Scarcity and Opportunity Cost

Course Code
Harvey King

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Module 1: What is Economics
Learning Objectives
At the end of this module, students should be able to do the following:
Define opportunity cost, and be able to explain/calculate the opportunity cost of various
decisions, both for simple decisions and for larger, more complex decisions.
In short, be able to use the concept of opportunity cost to analyze key decision-making both for
individuals and firms, but also for society.
Define the economic problem.
Explain the different methods societies use to solve the economic problem, and recognize these
different methods in action in decision-making in our society.
Explain what an economic model is, and give some insight into the strengths and limitations of
economic models.
Define and identify marginal benefits and marginal costs.
Explain and illustrate the role of incentives, rationality, and marginal costs/benefits in decision-
making in economic models.
1.1 Scarcity and Opportunity Cost
Economics can be thought of as studying how societies deal with what Robert Heilbroner calls
the economic problem: providing for the economic well-being of their citizens.
Each society has to decide on:
o What goods and services to produce, and how many.
o Which methods to use to produce those goods and services.
o Who gets the goods and services once they are produced.
1.1.1 Scarcity
We will begin by exploring the most basic economic problem scarcity.
What makes the economic problem interesting and difficult is that our available resources are
As a counter example, if you have ever watched the Star Trek TV shows or movies, you often
see the characters using the matter replicator to produce whatever good they wish in a sense, in
the world of Star Trek, there is no economic problem. (But see under time costs below)
This is not the case in the real world: resources are scarce there is not enough land, labour, raw
materials, etc. to produce everything.
Even in our rich country, there is scarcity.
People’s wants exceed their available resources.
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