Resources can be said to be scarce in both an absolute and a relative sense: the surface of the earth is finite, imposing absolute scarcity; but the scarcity that concerns economists is the relative scarcity of resources in different uses. Materials used for one purpose cannot at the same time be used for other purposes; if the quantity of an input is limited, the increased use of it in one manufacturing process must cause it to become less available for other uses.
The cost of a product in terms of money may not measure its true cost to society. The true cost of, say, the construction of a supersonic jet is the value of the schools and refrigerators that will never be built as a result. Every act of production uses up some of society’s available resources; it means the foregoing of an opportunity to produce something else. In deciding how to use resources most effectively to satisfy the wants of the community, this opportunity cost must be taken into account. In a market economy the price of a goods and the quantity supplied depends on the cost of making it, and the cost, ultimately, is the cost of not making other goods. The market mechanism enforces this relationship. The cost of, say, a pair of shoes is the price of the leather, the fuel, and other elements used up in producing them. But the price of these inputs, in turn, depends on what they can produce elsewhere—if the leather can be used to produce handbags that are valued highly by consumers, the price of leather will be bid up correspondingly.
1. According to the passage, what are the opportunity costs of an item?
2. What is the relationship between production and resources?
3. What determines the price of a goods in a market economy?
4. Which of the following statements is true according to the passage?
5. What are economists concerned about with regard to resources?