Question

How would I go about this question?

Discuss, and give real world examples of how scarcity, decision making, and opportunity cost relate.

Answer 1

The principles of economics basically start with scarcity, so if resources were abundant and available at lesser cost then people would have not thought of optimal utilization. Hence while making the best possible utilization of scarce resources opportunity cost principle plays an important role. Opportunity cost is the next best alternative or option available while making the production or business decision. With this principle it creates a fair competition on the use of resources which makes it be utilised to its best.

The real world example would be:

Investment in Share market: Suppose an investor is looking to invest $100 in share market, Opportunity cost helps to make optimal investment by allocating into shares which would give maximum returns. Here instead of making all of the investment on one firm, it helps to calculate on maximising the returns by allocating in multiple firms.
The other example would be firms offering different salary options. Looking at the various options, opportunity cost helps to bargain for higher salary and guides to make best decision to accept the offer.