Before I start today, I will like to define what economics means as that we helps us to get insight on the topic we are about to discuss for today.
Economics could be defined as the science that studies human behaviours as a relationship between ends and means which have alternative uses
In real life, all things are scarce relative to the demand for them. That is, human wants are unlimited but the means or resources to statisfy our unlimited wants are unlimited.
Everyday, we have a number of projects competing for the use of the limited time we have. We have a number of things or projects competing for the use of the unlimited money or other resources we have.
At a given period of the day, one may have a number of things to do. But It will not be possible for the fellow to do all these things during the limited time.
Also one may have an amount of money with him for which many things or projects are competing. As a student, one may have a sum of say $30 with him. Such a student may be faced with the problem. Of buying a pair of shoes, books, clothes or some other things.
Now let us assume that the sum of money could buy only one of the items mentioned above, the students has to decide on what to buy with the limited resources(money) he has out of the three alternative uses in this case.
If now he decides to and eventually buys a pair of shoes with the money he has made a choice. He has made the choice because of his limited resources in relation to his many wants.
Also humans being want to derive maximum satisfaction from the amount of money they spend. The fellow who chose to buy a pair of shoes with his $30 instead of buying books or clothe with it felt that his satisfaction from the use of the money by spending it on shoes would be highest.
So in his attempt to maximise his utility I. E derive the highest satisfaction from his $30 he had to decide on buying shoes with it
The making of choice means that one has to choose one thing and leave out the other. In my example above, the student who decided to buy a pair of shoes with his $30 has made a choice and leaving out the buying of clothes and books. His decision involves what is known as opportunity cost which is the real cost or the pure cost of his decision to buy a pair of shoes.
By opportunity cost, here I mean the alternative foregone so as to be able to buy what he decided to buy. So the making of choice involves opportunity cost.
The government also can make a choice of what social amenities to provide for his people and the order in which the amenities would be provided. This is because the government, like the individual is also resources, choices has to be made.
And the making of choice involves what is known as opportunity cost.
I hope in today post, we have been an to learn why choice is really made in economic life and what are really involved in choice making.