ECON202 Lecture 1: Scarcity and Opportunity Cost
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Module 1: What is Economics
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
• 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.
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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