AS & A Level Economics 9708: Scarcity and Opportunity Cost at Every Level

Three different decision-makers each face scarcity, because the resource they have available cannot satisfy every use they might want to put it to.

Scenario 1: A student has exactly one free afternoon before her exam. She can use it either to revise for the exam, or to work a paid shift at a supermarket.

Scenario 2: A small bakery owns exactly one delivery van. On Friday morning, two different restaurants each place a bread order that needs delivering at the same time, so the van can deliver to only one of the two restaurants that morning.

Scenario 3: A town council owns exactly one unused plot of public land. It can use the plot to build either a new library or a new sports centre, but building one of these uses up the plot so that the other cannot also be built there.

(a) For each of the three scenarios, identify the opportunity cost of choosing the first option named (revising for the exam; delivering to the first restaurant's order; building the library). [3]

(b) Using Scenario 2, explain why the bakery's inability to deliver both orders on time is a direct consequence of scarcity. [2]

(c) Explain how Scenario 3 shows that scarcity forces choices on a government, and not only on individuals, such as the student in Scenario 1, or firms, such as the bakery in Scenario 2. [2]

Part (a): Identifying the opportunity cost in each scenario

Opportunity cost is the value of the next best alternative given up when a choice is made. In each scenario, only one resource is available (the afternoon, the van, the plot of land), and it can only be used one way at a time.

Scenario 1: choosing to revise means giving up the wages from the supermarket shift, so the opportunity cost of revising is the supermarket wages forgone.
Scenario 2: choosing to deliver to the first restaurant means the van is unavailable for the second restaurant’s order, so the opportunity cost is the second restaurant’s bread order forgone.
Scenario 3: choosing to build the library means the same plot cannot also host the sports centre, so the opportunity cost is the sports centre that could otherwise have been built.

Part (b): Why the bakery’s problem is a direct consequence of scarcity

Scarcity means that a resource is limited relative to the competing uses people want to put it to. The bakery owns exactly one delivery van, and a van can only be in one place delivering to one restaurant at any given moment. Because both restaurants need their order delivered at the same time, and the bakery does not have a second van available, satisfying one order necessarily means the other order cannot also be satisfied at that time. This is a direct example of scarcity: a limited resource (the single van) cannot simultaneously meet every demand placed on it, forcing the bakery to choose.

Part (c): Scarcity forces choices on government too

It might seem that a government, with far more land, revenue and workers than any one individual or firm, would not face the same kind of scarcity. Scenario 3 shows this is not the case: even though the council may own many resources overall, this particular plot of land is still just one plot, and it can only be built on once. Building the library on it uses up the land entirely, so the sports centre cannot also be built there. Just as the student’s single afternoon and the bakery’s single van are limited resources with competing uses, the council’s single plot of land is a limited resource with competing uses, and the council must choose between them exactly as the student and the bakery do. This shows that scarcity operates at every level of decision-making (individual, firm and government alike) not only for people or organisations with small budgets.

Final answers

(a) Scenario 1: supermarket wages forgone. Scenario 2: second restaurant’s order forgone. Scenario 3: sports centre forgone
(b) The single delivery van is a scarce resource that can only serve one restaurant at a time, so satisfying one order means the other cannot be satisfied simultaneously
(c) The council’s one plot of land is just as limited, relative to its competing uses, as the student’s afternoon or the bakery’s van, showing scarcity forces choices on government as well as on individuals and firms