AP Economics revision notes

Scarcity

Scarcity is the situation when there are unlimited wants and limited resources

Example: A boy has $10 and he wants to buy a pen and a pencil. The cost of the pen is $8 and the cost of pencil is $6. The situation clearly shows that he cannot buy both the things because it will cost him $14 to buy the both things, and he has only $10.

 

Choice

We will have to make a choice because of scarcity.

Example: As he can buy both the things he will have to make a choice. He will have to choose between pen and pencil.

 

Opportunity cost

Opportunity cost is the best alternate forgone

Example: If the boy decides to buy a pen the opportunity cost of buying a pen will be the pencil.

If the boy decides to buy a pencil the opportunity cost of buying a pencil will be the pen