Question

Read the article from the Federal Reserve Bank of St. Louis, "Choices are Everywhere: Why can't we just have it all?"

Consider a government spending program you have read about in the news or research one online. In a well-composed post, explain the opportunity cost of that government decision. What was the next best alternative in your opinion? Describe how “scarcity” factors into the decision process. (Remember that all things are scarce.)

Please answer in 150 words or more. Be sure to reference your sources.

Answer 1

Scarcity is the primary economic problem, it states that humans have unlimited wants and needs in a world where there are limited resources. Our planet has insufficient productive resources to satisfy all individuals of their wants and desires. Society has to compromise between perusing wants and needs simultaneously in a trade off; by fulfilling them in return for losing another, this is known as opportunity cost. Opportunity cost is the next best alternative foregone when making a choice.

For example if one wishes to buy both a motorcycle and go on holiday, but cannot afford/get both, it highlights the basic relationship between scarcity and choice. When a choice is made over the other, then that is the opportunity cost. In this case the opportunity cost of going on holiday would be buying a motorcycle and vice versa.

Government expenditure is nothing more than a trade-off. A massive game of opportunity costs that display the basic relationship between choice and scarcity. The government constantly have to decide how to manage spending and contemplate how to create a balance where everyone’s needs and wants are fulfilled.

The concept of opportunity cost is clearly illustrated in government expenditure; the government realise that they cannot satisfy all area of expenditure that need financing so divide the budget as per the need.

For example in 2011 the government spent 18% of their budget on health care and only 3% in transport. Both health care and transport are key to the functionality of the UK and its economy, however the fact that the government spent these different amounts, disproportionately, show how the government is dealing with opportunity costs. They had to decide which was more important and invest an increased amount in the other. The opportunity cost of spending more on health care is spending less on transport.

On the other hand it can be said that although the opportunity cost of spending more on health care is spending less on transport, it is done so, in order to benefit society the most. The opportunity cost is so insignificant, as it is tailored to the needs of the population, that it can in fact be deemed irrelevant. Therefore it does not demonstrate opportunity cost within the government.

However even when opportunity cost is so low, it is still there and so it can be said that government decisions are still examples which illustrate the concept of opportunity cost. Obviously this does not erase the economic problem that consumes our society, but it illustrates how the concept of opportunity costs effect decisions made by our government, which ultimately affects us