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How does scarcity relate to choice and opportunity cost?

In: Economics [Edit categories]

Answer:

Pretty straight forward - all entities (whether businesses or individuals) have a limited amount (scarcity) of both time and money. This requires each entity to decide (choose) how time and money will be spent, thus resulting in an opportunity cost for things not done or purchased.
For instance, if a company has $1 million in cash, the company must decide whether to hold the funds to help increase their liquidity, pay the funds to shareholders, or invest it in new business opportunities. Once a dollar is dedicated to one of these options, that same dollar can not be allocated elsewhere.

First answer by ID1167636658. Last edit by Chrystal phua. Contributor trust: 1 [recommend contributor ]. Question popularity: 6 [recommend question].

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