Explain How Scarcity And Opportunity Cost Affect How Government Make Decision?


2 Answers

Anonymous Profile
Anonymous answered
Scarcity is when a country is short of resources- unable to satisfy the unlimited wants of people with limited resources. So for that choices have to be made. When we give up something for the better or the forgone  benefit we could have get by arriving  at the next best alternative is known as opportunity cost.

For example , govt. Plans to construct a road and a school in a country side but then it finds out that it can't go with the both options due to limitedness of factors of production ( resources) therefore, he makes a choice. He might go with the road or with the school . If he go with the road then the school is the opportunity cost , the benefit forgone the govt. Could have had by building school.

So govt. Decisions do get affected as he has other projects to run ; if he use up all the resources on one project he might not be able to cover other projects or plans. Then he might have to ask for foreign aids etc. Costs of governments do increase.

Answer Question