What is Economics?... Continued

No matter how many resources we gain, they will always remain insufficient to meet our wants which will forever remain unlimited. Scarcity is defined as a situation when wants are more than the resources available. Hence, the study of economics is about how one goes about allocating these limited (scarce) resources to unlimited wants.

However, to do so, choices have to be made to allocate resources towards certain alternative wants and not others. Since before the choice was made, all alternatives were available opportunities, the alternatives that were not selected (or forgone) are opportunities lost. This situation is called opportunity cost.

Discussion by examples (5 minutes)

1. Consider this scenario. If you had 200 shillings and chapatti flour (Unga) was 200 shillings while a hoe (Jembe) was also 200 shillings, you would only buy Unga or a Jembe but not both. To buy Unga, you have to give up a Jembe. Your opportunity cost is the Jembe you gave up to buy Unga.
2. Can you think of similar examples of opportunity cost that affect your business?