Problem 8

Introduction

Let's consider a rational consumer budget problem. He has limited income to spend on the things he wants so has to sacrifice one good for consumption of other additional goods. Since resources tend to be scarce, anyone that uses the resource has to make a decision about how to use it. Suppose, for example, that you are a drink manufacturer. To produce a beverage, you have to use some scarce resources: the plastic for the bottle, the workers’ time, a machine to fill the bottles, etc. If you choose to make one bottle of water, you have chosen to not make a bottle of soda. Your scarce resources force you to make a choice and a trade-off producing one product or another.