1.1 Scarcity

Scarcity is the core economic problem: resources are limited while wants are not, so individuals, firms, and governments must choose. Every choice has an opportunity cost, the value of the next-best alternative given up, and economists measure the cost of anything by what you sacrifice, not just what you pay.

The scarce resources are the four factors of production: land (natural resources), labor (human effort), capital (tools, machines, and buildings, not money), and entrepreneurship (organizing the other three and bearing risk). MCQs love asking which category an item belongs to; a factory is capital, the manager's know-how is labor or entrepreneurship.

Scarcity applies even to things that are plentiful: gasoline, water, and hospital beds are all scarce because at a zero price people want more than exists. Microeconomics studies how individual decision makers respond to that scarcity, while macroeconomics studies the economy as a whole.