scarcity and opportunity cost, how are they interlink

Before I talk about scarcity and opportunity cost, let me introduce what economics is about. When the question 'what is economics about?' is asked, the first thing that comes to people's mind is that economics is about money. In actual fact economics is more then just about money. Economics is a social science that studies how societies use scarce resources which have alternative uses to produce goods and services to satisfy unlimited human wants. It focused primarily on the analysis of the societal systems of production, distribution and consumption of goods and services.


Now that we know how is scarcity related to economics, what exactly is scarcity? Humans are greedy creatures. Humans wants lots of things in the world such as money, better clothes, better transportation and food, making human wants unlimited. However all of these wants cannot be fulfilled. This is due to fact that resources needed to produce goods are limited, thus these resources become scarce. All societies face scarcity of resources. Resources could be in terms of labour, land, capital or management.

So what happens from here? Resources can be used for many different things but because of the limit of the resource that people have to make choices to satisfy some of their wants. From here people have to make choices due to the scarcity of resources. This creates opportunity cost, which is a measure of what you could have gotten from your next best alternative if you had chosen that alternative. What ever choice you made there is an opportunity cost.

Scarcity and opportunity cost are always interlink. It is because of scarcity of resources that people have to make choices between the goods that they want. The choices that they make will always produce and opportunity cost as the money could have been used for another good.

Scarcity and opportunity cost happens in everyday life. I remember that one time when I was deciding on which computer game I should get. When I found two games that I liked, both costing $50. In my wallet I only have $60 which is not enough to buy two games since the combination of those two games would cost $100. Therefore I had to decide on which game I had to forgo since my resource (the money I had) is scarce. So I decided to pick the game that I really wanted to play. This would create an opportunity cost, which would be the money that i could have used to buy the other game.

Countries also face scarcity of resources and would have always make choices, which would create an opportunity cost. One major scarce resource that Singapore faces is land. On the map Singapore is only a very tiny dot , thus already proves that Singapore is does not have a lot of land and comparison to other countries all over the world.

Initially when Singapore was developing, land was used to build factories to industrialise the country. However as Singapore develops, they need to use the land for other purposes that will raise the productivity level and overall GDP in the country by having more revenue generating industries such as banking, finances and IT. However with the shortage of land, Singapore is unable to build more factories and high-rise buildings to house the revenue generating industries, thus Singapore forgos building factories to build more high-rise buildings, making the land that would have been used to build factories the opportunity cost.

Countries, companies and people all face scarcity of resources. Due to the scarcity of resources, choices have to be made which in turn creates opportunity cost. Whatever choice that someone makes there will always be consequences. To sum it up, scarcity and opportunity cost are interlink as scarcity will always create opportunity cost due to choices.

Yeo Ee Jie 5X