Wants, Scarcity, Choice and Opportunity Cost

Human wants are unlimited — as soon as one want is satisfied, another arises in its place, and new wants keep emerging as incomes rise and societies develop. Against these unlimited wants stand the means of satisfying them — land, labour, capital and entrepreneurship — which are always limited in supply relative to what people would like to have. This basic imbalance between unlimited wants and limited resources is called scarcity, and it is scarcity, not poverty, that is the true starting point of Economics: even the wealthiest individual or the richest nation faces scarcity, because however much is produced, wants always run ahead of the resources available to satisfy them.

Because resources are scarce, every economic agent — a household, a firm, or an entire economy — is forced to choose which wants to satisfy and which to leave unsatisfied, and how to use its limited resources among competing purposes. Choice is thus the direct and unavoidable consequence of scarcity: if resources were unlimited, there would be no need to choose, and Economics as a subject would not exist.

Every choice has a cost, but that cost is not always measured in money. The opportunity cost of any choice is the value of the NEXT BEST alternative that is given up in order to make that choice. If a farmer's land can grow either wheat or sugarcane, and he chooses to grow wheat, the opportunity cost of that decision is the sugarcane he could have grown instead. Opportunity cost is what makes economic decision-making inherently about trade-offs — nothing is ever a 'free' choice once resources are scarce, because choosing one use of a resource always means forgoing some other use of the very same resource.