Explain why scarcity forces individuals and society to incur opportunity costs. Give specific examples.

Explanation
Scarcity occurs when desire for goods, services or time in an economy is more than its availability. Due to scarcity, individuals are bound to understand that they cannot fulfill all their desires and hence have to forego certain things. Opportunity cost refers to the loss due to the best foregone option.

Sample Response
When an individual faces the problem of scarcity, their wants and desires for goods and services are more than what is available to them. Therefore, they have to make choices regarding which want to fulfill and which one to forego. This gives rise to the concept of incurring opportunity cost.

An individual who has limited income is bound to choose which good to consume and which one to forego, given their income. This induces a feeling of scarcity in them as they cannot always afford to buy all the goods and services they desire. If they want to buy one good, then they have to forego the consumption of some other good which could have been bought with that money. The foregone alternative is the opportunity cost faced by consumers.

For example, a consumer consuming only biscuits and meat will have to decide how much quantity of both they want. Given his fixed income, if he wishes to increase the consumption of meat, he will have to decrease the consumption of biscuits so that the income saved from buying less biscuit is used up in buying meat. Therefore, the situation of reduced biscuit consumption, in response to an increased meat consumption, incurs an opportunity cost due to the fall in biscuit consumption.

Similarly, when resources are allocated in a society, due to limited availability of resources all goods cannot be produced to their maximum extent. To increase production of one good, it is required to decrease the production of the other so that resources can be shifted from the latter's production to the former's production. This limited availability and scarcity of resources creates opportunity cost.

If a society decides to allocate a resource in either computer or mobile production, then, to increase computer production they will have to decrease mobile production since resources are fixed. This fall in mobile production required to increase computer production due to limited resources will induce a sense of scarcity, and hence, incur an opportunity cost.