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MODULE 1.1 Scarcity and Choice

In this Module, you will learn to:
• Explain how scarcity and choice are central to the study of economics
• Define each category of resources
• Explain the importance of opportunity cost to decision making
• Distinguish between the two main branches of economics

Economics is the study of Scarcity and Choice: The Core
scarcity and choice.
of Economics
You make a trade-off when
you give up something to get Economics is the study of scarcity and choice. To be scarce, something must be desired
something else. in quantities beyond the available supply. Can you think of goods or services that are

A resource or factor of available to everyone in unlimited supplies? Air, perhaps, although pollution and air-
production is anything that can borne diseases have limited the availability of clean air. We can appreciate the breadth
be used to produce something of economics by considering how few things are not scarce.
else. Everything, from art museums to zippers, are limited in supply — that is, they are
scarce. So the principles of economics apply to most things. Let’s take a closer look at
Land refers to all resources the causes and implications of scarcity.
that come from nature, such as
timber, wind, and petroleum. Resources Are Scarce
Labor is the effort of workers. You can’t always get what you want. You might like to have a beautiful bike, the best
smartphone, the finest shoes, and the latest equipment for your hobbies. But not many
Capital refers to manufactured
goods used to make other people can afford all of that. So each individual faces trade-offs. You make a trade-off
goods and services. whenever you give up something in order to have something else. Perhaps you can buy
a bike this year if you don’t upgrade your phone, or you can buy a new pair of shoes if
Entrepreneurship describes you don’t buy a new fishing pole.
the efforts of entrepreneurs Limited income isn’t the only barrier to people having everything they want. Time is
in organizing resources for also in limited supply: there are only 24 hours in a day. And because the time we have is
production, taking risks to create limited, choosing to spend time on one activity also means choosing not to spend time
new enterprises, and innovating on a different activity — spending time studying for an exam means forgoing watching
to develop new products and a movie. Indeed, many people feel so limited by the number of hours in the day that
production processes.
they are willing to trade money for time. For example, convenience stores usually charge
A scarce resource is not higher prices than larger supermarkets. The closer, smaller convenience stores often
available in sufficient quantities appeal to customers who would rather pay more than spend extra time traveling to a
to satisfy all the various ways a supermarket where they might also have to wait in longer lines.
society wants to use it. Every economic issue involves individual choice — decisions by individuals about
what to do and what not to do. Why do individuals have to make choices? The ulti-
mate reason is that, with few exceptions, resources are scarce. A resource is anything
that can be used to produce something else. The economy’s resources, also called
factors of production, can be classified into four categories: land (all resources
that come directly from nature, including plants, water, and minerals), labor (the
Eric Raptosh Photography/Getty Images services, such as machinery, buildings, and tools), and entrepreneurship (risk
effort of workers), capital (manufactured goods used to make other goods and
taking, innovation, and the organization of resources for production). A resource
is scarce when there is not enough of it available to satisfy all of the various ways
a society wants to use it. For example, there are limited supplies of oil and coal,
which currently provide most of the energy used to produce and deliver everything
we buy.

4 Macro • Unit 1 Basic Economic Concepts
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