Scarcity, choice, and opportunity cost are fundamental concepts in economics that are closely interconnected

 Scarcity, choice, and opportunity cost are fundamental concepts in economics that are closely interconnected. They help explain how individuals, businesses, and societies allocate limited resources to satisfy unlimited wants and needs.

Scarcity

Scarcity refers to the fundamental economic problem of having limited resources (such as time, money, labor, natural resources, and capital) to fulfill virtually unlimited wants and needs. In other words, there is not enough of everything to satisfy everyone's desires completely. Scarcity is a pervasive and unavoidable aspect of human existence and underlies the need for economic decision-making.

Choice

Choice is the process of selecting among competing alternatives to allocate scarce resources. Individuals, businesses, and governments must make choices about what goods and services to produce, how to produce them, and for whom they should be produced. These choices involve trade-offs because allocating resources to one option often means forgoing another. Choices are influenced by various factors, including personal preferences, budget constraints, and societal priorities.

Opportunity Cost

Opportunity cost is the value of the next best alternative that must be sacrificed when a choice is made. It represents the benefits or value that could have been gained from pursuing the alternative option that was not chosen. In essence, opportunity cost reflects the cost of forgoing the next best alternative when making decisions. It is a critical concept in economics because it emphasizes that every choice involves trade-offs, and resources are not only limited but also have alternative uses.

Relationship between Scarcity, Choice, and Opportunity Cost

I believe that these concepts are intricately connected and form the basis of economic decision-making. For example, scarcity necessitates the need for choice because resources are limited relative to unlimited wants and needs. Choices are also involve weighing the benefits and costs of various alternatives. Opportunity cost arises as a result of making choices. When you choose one option, you give up the potential benefits of the next best alternative. It is similar to the choices between invest in the shares of Apple Inc and the shares of Amazon, when you only get very limited money available for investment. The shares of these companies are also limited. Therefore, in this case, you have to make the choice with scarce capital and forgo the best alternative.  Not only in the stock markets, economists assume that decision-makers often consider opportunity costs when making choices to ensure they allocate resources efficiently and effectively. 

However, I think that not all individuals are always consider the best alternative before doing anything in the real world. For example, if a student decides to spend their evening studying for an exam rather than going out with friends, the opportunity cost is the enjoyment and social interaction they forgo. Understanding this concept helps individuals and organizations make more informed decisions about how to allocate their scarce resources. But, sometimes, the student may tend to make such choices without considering all the alternatives. In summary, scarcity leads to the need for choices, and making choices incurs opportunity costs. These concepts are central to the field of economics, as they help individuals and societies make rational decisions in the face of limited resources.

The Allocation of Government Funds for Healthcare

In most countries, there is a finite amount of government revenue available to allocate to various sectors, including healthcare. This revenue is derived from taxes, and it is limited. At the same time, the healthcare sector faces increasing demands due to population growth, aging populations, and the need for advanced medical technologies and treatments. This situation exemplifies the concept of scarcity as there are limited financial resources to meet the ever-growing healthcare needs. Faced with the scarcity of funds, governments must make choices about how to allocate their healthcare budget. They have several options, such as increasing funding for hospitals, expanding access to healthcare services, investing in medical research, or improving public health programs. Each of these options has its own set of benefits and costs.

Opportunity Cost, Medical Facilities or Public Health Programs?

About 10 years ago, I witness that the government made a significant choice while I was working for a public healthcare department. Choice A is to increase funding for hospitals and medical facilities to reduce wait times for surgeries and improve the quality of care. Choice B is to invest in public health programs aimed at preventing chronic diseases and promoting healthy lifestyles. If the government chooses Option A (increasing funding for hospitals), it incurs an opportunity cost. The opportunity cost is the potential benefit of Option B (public health programs) that is forgone. This includes the long-term cost savings associated with preventing chronic diseases, improving overall population health, and reducing the burden on the healthcare system. Evidence from numerous studies supports the idea that investing in preventive healthcare measures can lead to substantial cost savings in the long run. For instance, the World Health Organization (WHO) has reported that every dollar invested in tobacco control programs can result in a return on investment of up to $50 in healthcare cost savings.

Reference

Fernando, J. (n.d.). Opportunity cost formula, calculation, and what it can tell you. Investopedia. https://www.investopedia.com/terms/o/opportunitycost.asp 

Khan Academy. (n.d.). Lesson Summary: Scarcity, choice, and opportunity costs (article). Khan Academy. https://www.khanacademy.org/economics-finance-domain/microeconomics/basic-economic-concepts-gen-micro/economics-introduction/a/lesson-overview-scarcity-choice-and-opportunity-cost 

Team, T. I. (n.d.). Scarcity: What it means in economics and what causes it. Investopedia. https://www.investopedia.com/terms/s/scarcity.asp 

World Health Organization. (n.d.). Investing 1 dollar per person per year could save 7 million lives in low- and lower-middle-income countries. World Health Organization. https://www.who.int/news/item/13-12-2021-investing-1-dollar-per-person-per-year-could-save-7-million-lives-in-low-and-lower-middle-income-countries