Short on time? This page is the recap. For explanations, diagrams and worked examples, use the full study guide.
Recap
- Scarcity: the resources available are not enough to satisfy all of society’s wants and needs.
- Scarcity is relative (not enough compared with wants) and universal (rich and poor, people and countries).
- Causes: resources are limited and have alternative uses; time is limited; wants keep growing.
- Scarcity → choice → trade-off (more of one thing means less of another) → opportunity cost (the next best alternative given up).
- Most factors are rival: one user’s use stops another using the same unit at the same time. Established knowledge is non-rival, so it may not be scarce.
Key relationships
| Factor of production | Meaning | Example |
|---|---|---|
| Land | natural resources as found in nature | farmland, water, forests, minerals |
| Labour | human effort and skill | a teacher’s working hours |
| Capital | human-made tools, machines, buildings used in production | ovens, vans, factories |
| Entrepreneurship | organising the other factors and taking risk | the founder of a new firm |
| Scarcity | Shortage |
|---|---|
| not enough resources for all wants | in one market, buyers want more than sellers offer at the current price |
| permanent, everywhere | temporary, particular goods |
Assumptions to keep in mind
- People want more than resources can provide, so wants are treated as unlimited.
- Each resource has more than one possible use.
Mistakes to avoid
- Calling money “capital”. Capital is physical tools, machines and buildings.
- Saying scarcity means “rare”. It means “not enough for what people want”.
- Treating scarcity and a shortage as the same thing.
- Saying rich countries escape scarcity.
- Saying knowledge is never scarce: only established, already-known knowledge is non-rival, and using it still needs scarce time and resources.
- Listing everything given up as the opportunity cost instead of only the next best alternative.
Quick self-check
- A hospital’s new X-ray machine is which factor of production? (Capital.)
- Sana has 6 free hours. An essay takes 2 hours and a football training session takes 1 hour. What is the opportunity cost of writing one essay? (2 training sessions.)
- Why may a well-known mathematical rule not be scarce? (It is non-rival: any number of people can use it at once without using it up.)
- What are the two sides of scarcity? (Limited resources with alternative uses, and wants that keep growing.)
Next: practice questions.