Question

1. think about how scarcity affects the decisions we make as individuals. Please list three goods that you personally consume on a regular basis. Then, explain the tradeoffs you have to make when you decide how much of these goods to purchase. 2. Next, please describe one positive and negative externality for a common good or activity (does not have to be one of the above). 3. Finally, please write a sentence or two describing one opportunity cost of taking this course （comerce/economic development）. This does not have to be measured in exact dollars or units, but should illustrate your understanding of the concept. Please write more than 400 words, and give references.

Answer 1

1. Scarcity is one of the basic economic problem. Scarcity means that the society has limited resources but have unlimited wants and so the society cannot produce all the goods and services they want.

For example, say for example David is so poor that he doesn't have a house to live in, so his immediate wish would be to get a place where he can live. Now, if he can afford to live in a rented place then he would wish to buy his own house. Now, lets assume he have got enough money to buy a small house to live in, then his wants would not stop even there. He would wish to buy a bigger house and have a car, have luxurious things in his house and his wants would go on and on.

But, the society on the other hand doesn't have unlimited resources to satisfy everybody's unlimited desires. This is where the problem of scarcity comes in and hence in Economics we study how the society as a whole would manage its scarce resources efficiently and derives maximum utility out of it.

Three goods that we personally consume on a regular basis are:

(1) Food and water - Food and drinking water are the basic necessities of life. When we are buying these necessities we are trading off other things that we would have wished to purchase. Say, for example you want to buy a new dress for a long time but have limited money to buy it. You have to choose either to buy the new dress or buy the basic necessity such as food, now given the fact that you can't live without food you would choose food and water first.

(2) Transportation - When you are going to a place by a public bus you are trading off the luxury when you go by your own car.

(3) Paper be it school books, copies or the newspapers or magazines we buy to read everyday. - When you buy paper be it in any form you are trading off have more trees in the environment since tress are cut down to make paper.

2. One example for a common good is the air. Now, the positive externality of the air is that all living beings are alive because of the oxygen in the air, we cannot live without breathing. The negative externality of the common good i.e. the air is that because of so much smoke that is released into the air, it results in air pollution and we are increasingly getting more diseases because of the polluted air.

3. Opportunity cost is whatever must be given up to obtain another good. The opportunity cost of taking this course i.e. Economics is that you could have studied some other subject such as chemistry and learn more about it. Another opportunity cost of taking this course is that you could have spent money that you are spending now for the course in buying some other good or a service.