Question

Describe how the concepts of scarcity, choice, and opportunity cost apply to each of the following situations. Think about what exactly the scarce resource is, what the choice there is to be made, and what the opportunity cost (there is going to be more than one) of the choice might be.

a) You debate using a Saturday afternoon to (1) nap or (2) work on this assignment.

            b) The Oswego County legislature, facing a large budget deficit, debates over whether to (1) increase property taxes 35% or (2) increase property taxes only 15% and lay off 100 county workers.

Answer 1

a) You debate using a Saturday afternoon to (1) nap or (2) work on this assignment :

There is time constraint or scarcity because saturday afternoon is a short period of time . We have to choose between the given alternatives available . If I choose to work then I will have to forgo nap , this is the opportunity cost of working on assignment .

b)  The Oswego County legislature, facing a large budget deficit, debates over whether to (1) increase property taxes 35% or (2) increase property taxes only 15% and lay off 100 county workers. :

Now here the scarcity is budget deficit present or scarcity is finances available , resources or options available to raise money . The government can raise money or balance the budget either by spending less or by increasing their income by raising taxes , only two choices as government cannot just print money as and when necessary .

Here , the opportunity cost is interesting because if government selects to increase property taxes by 35% it will cause huge rise in price of property and can lead to loss of economic efficiency . But if the second option is chosen then 100 workers will be laid off and will cause rise in unemployment . So here is a debate between high inflation and unemployment . The opportunity cost is one of them .