Texas A&M University (TAMU) AGEC 105 Introduction to Agricultural Economics Exam 1 Practice

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Which statement best describes scarcity and opportunity cost?

Scarcity is the condition of limited resources relative to unlimited wants; opportunity cost is the value of the next-best alternative forgone when choosing a resource allocation.

Scarcity means resources are limited relative to wants, so decisions involve trade-offs. When you choose how to use resources, you forgo the next-best alternative—the opportunity cost. It’s about the value you give up by not taking that alternative, not just the dollar price of something.

This description matches the idea that scarcity is a condition of limited resources and unlimited wants, and that opportunity cost is the value of the next-best option you sacrifice when allocating a resource. The other statements miss key ideas: scarcity isn’t about unlimited resources, and opportunity cost is not merely the resource’s price or restricted to producers, nor is it defined purely by high prices or monetary cost.

Scarcity is the condition of unlimited resources relative to limited wants; opportunity cost is the price of the resource.

Scarcity only applies to producers; opportunity cost applies to consumers.

Scarcity is defined by high prices; opportunity cost is the monetary cost.