To produce goods and services, resources usually need to be combined. For example, to bake a loaf of sourdough bread, we need flour, water and salt (land resources), an oven (capital resource) and a baker (labour resource). Unfortunately, as we have seen, the resources available to us are limited. We can only produce a certain amount of goods and services from these resources. We are not able to satisfy the unlimited needs and wants of society. Because of economic scarcity, we must choose some things, which means giving up other things. Opportunity cost In economics, opportunity cost refers to what you give up when making a choice due to scarcity. It represents the sacrifice made when choosing one option over another. Every decision involves an opportunity cost. For example, Ayesha can buy either a new book or a pair of earrings, but not both. She chooses the book, and the opportunity cost is the earrings she did not purchase. Consumers, businesses and governments all consider opportunity cost in their decisions. Consumers make choices about purchases, work and leisure. Businesses decide what products to produce and how to meet customer needs. Governments determine how to manage society and the economy effectively. All economies must allocate scarce resources to satisfy endless needs and wants. This process, called resource allocation, addresses the basic economic problem through an established economic system.
SkillBuilder discussion Communicating 1. Mind-map with a partner some of the opportunity costs that you or someone you know may have faced in the last week.
FIGURE3 The cost of buying a video game is not just the price paid, but also the opportunity cost of not being able to spend the money on something else.
2. Discuss how these decisions can be complicated. 3. Why do people have
to make a ‘trade-off’? Can you explain this in economic terms?
An economic system is the way we organise the production and distribution of our goods and services. All economic systems must answer three basic economic questions:
• What to produce • How to produce • For whom to produce
588 Jacaranda Humanities Alive 8 Victorian Curriculum Third Edition
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