3.1.4 - Scarcity, Choice and the Allocation of Resources Flashcards
What is scarcity?
The limited amount of a particular resource leading to rationing of those resources.
What is the fundamental economic problem?
How best to make decisions against the problem of scarcity to maximise human happiness and economic welfare.
In free market economies, what determines the rationing of scarce resources?
The price mechanism.
What is choice?
Choosing between alternatives when making a decision on how to use scarce resources.
How can people avoid going into debt when the price of living goes up?
People must sacrifice spending on other sectors (entertainment, luxuries etc.)
When does the need for choice arise?
When an economic agent must choose between two (or more) mutually exclusive events.
What must economists assume about people?
People behave rationally.
What must people have in order to behave rationally?
Information about the topic (i.e. knowledge that smoking causes cancer therefore the population should not smoke)
What happens when a choice must be made?
People always choose what they think at the time is the best alternative.
“that they think at the time” - seeing a film, expecting to enjoy it, but hating it. It’s still technically rational behaviour, as you did not have all of the information needed. If you see the same film again, that’s irrational.
What is inter-temporal choice?
Choice over time.
Where does inter-temporal choice come into effect?
When choosing to sacrifice the short-term benefits, in exchange for possible long term benefits that outweigh the short-term.
