ECON 101: Scarcity, Opportunity Costs, and Trade-offs

Many people are talking about the economy and have ideas on whether they will recover sooner or later. Knowledge is a tool that allows us to make informed decisions. Understanding the economy and basic concepts can protect us from unreasonable panic. However, for many people, one of the obstacles is lack of time. For your convenience, the ECON 101 series has been created

Each article focuses on an economic theme including specific concepts that affect readers. These examples are simple, the purpose is to explain the concept. We are not going to talk about theory or history for a long time, but we provide some ideas on how to apply to you, your family and your community.

Our goal is to help you become more aggressive in managing your finances. As usual, the success of this series depends on you and your feedback.

Do you want to share your story, expertise and experience? Please leave a comment. I would like to honor those who provided better examples when updating posts.

Rarity is a relatively simple concept because we all experience it in some way. As a family we want beautiful roofs, meals, fashionable and long lasting clothes, amusement options, good education, and occasional vacation. A rare example is our income this month.

If a family of four earns $ 2,300 per month, you have to decide how to use it. If you are a family of two, there is more space. In any case, you can not spend more than $ 2,300 without harmful consequences.

When you are in a grocery store you may notice that some fruits and vegetables are fluctuating, some are seasonal, and some are not? When do you think you can get the best price? For richer crops, you can usually find fruit and vegetable sales during the season.

People, families, cities, and countries have to decide how to allocate resources. Due to the economic crisis affecting many fields such as housing and employment, the country's demand is growing but income is decreasing.

Economics is research on production, distribution and consumption of goods and services. The goal is basically to use limited resources in an optimal (efficient) way.

Opportunity cost is the reason you give up the opportunity. That is the next best plan you decide. As we saw before, the family can choose the place they will spend the money. Because some families may not have the most trendy clothes, they can live in a larger house.

A common example is those who decided to go to college to obtain a four-year degree. The cost of this decision is a 4 year salary loss that may occur if you graduate from high school. Why do some people choose universities? If the economic situation of the university is better than without the university For some people it is a better choice for their field to be certified.

Each country also has to compare opportunity costs and review the trade-offs of economic decisions. Schools, roads and medical care are the main expenses of the budget. However, some states are still consuming and there seems to be no shortage.

Based on the definition of resource shortage in economics, opportunity costs can be thought of as a result of resource shortage. Because shortage requires trade-offs and trade-offs that bring opportunity costs. Specifically, the cost of an item or service is usually measured from a financial point of view, and the opportunity cost can be regarded as the result of "getting a choice". (When there are two or more choices that people decide). For example, a 20 pound person can buy cloth or buy dinner. If she buys cloth, opportunity cost is dinner. In contrast, if she pays for dinner, the opportunity cost is cloth. Even if you have more than one choice, opportunity costs should be one item, not all.

The concept of trade-off due to shortage is formulated by the concept of opportunity cost. The opportunity cost of choice is the value of the best option for abandonment. In other words, if you can only produce bottled soda and water, the opportunity cost of manufacturing bottled water is the value to produce bottled soda. In the same way, everything has opportunity costs. The opportunity cost to read this is that you can spend your time (like watching a movie). When scarce resources are used (almost all are scarce), people and companies are forced to choose at opportunity cost.