There are 3 basic concepts of economics; scarcity, choice, and opportunity cost. These concepts help us understand how people make decisions and how they face trade-offs.
Scarcity means that we have limited resources, but unlimited wants. Resources are things like land, labor, capital, and technology that we can use to produce goods and services. Wants are the desires that we have for goods and services that can make us happy or better off. For example, you may want a new phone, a car, a vacation, or a college degree. But you cannot have everything you want, because you have limited resources, such as money, time, or skills.
Choice means that we have to select among alternatives. Because we cannot have everything we want, we have to choose what is most important to us and what we are willing to give up. For example, if you have $1000, you can choose to buy a new phone or a laptop, but not both. If you have 24 hours in a day, you can choose to study or play video games, but not both.
Opportunity cost means that when we make a choice, we give up the value of the next best alternative. It is what we sacrifice or lose when we choose one option over another. For example, if you choose to buy a new phone for $1000, your opportunity cost is the laptop that you could have bought with the same money. If you choose to study for 4 hours, your opportunity cost is the fun that you could have had playing video games for 4 hours.
The concepts of scarcity, choice, and opportunity cost help us understand that every decision has a cost and a benefit. The benefit is what we gain from choosing an option. The cost is what we give up by not choosing another option. To make good decisions, we should compare the benefits and costs of different options and choose the one that has the highest net benefit (benefit minus cost).
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