Introduction & Marginal Analysis
BEO6600 Business Economics: Tutorial/Homework Assignment #1 & 2
Coverage: Introduction & Marginal Analysis
6. *Define scarcity and opportunity cost. What role these two concepts play in the making of business decisions?
In economic situation, Scarcity means there are inadequate/ insufficient amount of supply of resources.
Those resources are Human resources (labour), natural resources (land and raw materials), and manufactured resources (capital). Scarcity is where human wants are virtually unlimited whereas the resources available to satisfy what their wants. So, scarcity can be identified as the excess of human wants over what can actually be produced.
Opportunity cost is the cost we sacrifice which occur when we make a specific activity or choice measured in terms of the best alternative skipped.
By putting scarcity concept to business decision, manager actually can predict the limit of resources they want to use, since resources are limited. For example, with a population of five million and a limited land area of 710 square kilometers, Singapore faces immense challenges in its land-use planning. So, Singapore adopts a centralized planning approach while ensuring a judicious use of land so as not to compromise its ability to meet future needs (www.esri.com/news/arcnews/winter0910articles/singapore-uses.html).
With scarcity, there is usually a trade-off and these trade-off results in an opportunity cost. These concepts play a role when taking into account: • Consumer choices (Affect in the individual choices) • Production possibilities (Limitations on what people are able to produce) • Cost of capital • Time management • Career choice • Balancing decisions.
Analysis of comparative advantage in business decision- making, opportunity cost is a concept where manager uses to measure the cost they have to sacrifice from choices the company has to achieve their goals. For example, restaurant ABC has to spend extra on
Coverage: Introduction & Marginal Analysis
6. *Define scarcity and opportunity cost. What role these two concepts play in the making of business decisions?
In economic situation, Scarcity means there are inadequate/ insufficient amount of supply of resources.
Those resources are Human resources (labour), natural resources (land and raw materials), and manufactured resources (capital). Scarcity is where human wants are virtually unlimited whereas the resources available to satisfy what their wants. So, scarcity can be identified as the excess of human wants over what can actually be produced.
Opportunity cost is the cost we sacrifice which occur when we make a specific activity or choice measured in terms of the best alternative skipped.
By putting scarcity concept to business decision, manager actually can predict the limit of resources they want to use, since resources are limited. For example, with a population of five million and a limited land area of 710 square kilometers, Singapore faces immense challenges in its land-use planning. So, Singapore adopts a centralized planning approach while ensuring a judicious use of land so as not to compromise its ability to meet future needs (www.esri.com/news/arcnews/winter0910articles/singapore-uses.html).
With scarcity, there is usually a trade-off and these trade-off results in an opportunity cost. These concepts play a role when taking into account: • Consumer choices (Affect in the individual choices) • Production possibilities (Limitations on what people are able to produce) • Cost of capital • Time management • Career choice • Balancing decisions.
Analysis of comparative advantage in business decision- making, opportunity cost is a concept where manager uses to measure the cost they have to sacrifice from choices the company has to achieve their goals. For example, restaurant ABC has to spend extra on
Bibliography: Esri: Understanding Our World, viewed 8 March 2012