All goods and services that have a price are relatively scarce. It may seem that, in your city, cars are not scarce as there are a great number of them around. However, it is certain that not everyone who would like a car in your area has one, usually because they cannot afford to buy a car. The amount of money they have, and the price of the car, usually determines the ability for people to purchase a car. So, scarcity is a condition that exists because there is an insufficient quantity of resources ( for example, money ) available to produce all the goods and services desired by individuals. In other words, we lack the income and ability to produce everything required to satisfy everybody's wants.
Since scarce resources and infinite wants conflict with each other, all consumers, firms, and governments must make choices and compromises on a daily basis. Consider for a moment the millions of decisions made by people everyday. For instance, all of them have to make a choice on when to travel and whether they should take the bus, walk, train, cycle or even work from home. Many of these decisions become habitual, meaning we make the same choices every time. And yet, on most days, people get to work on time and they get home too ! :P This is a remarkable achievement, and for it to be possible, the economy must provide both the resources and the options for it to happen.
For every choice, there will be an opportunity cost, which is the next best thing you must forgo. In other words, it is the second best that you must sacrifice in order to have your best or first choice. Opportunity cost is the true cost of any choice made between alternatives. For example, if you decide to buy a DVD for $20 rather than have a meal out, then the opportunity cost of the DVD is the meal out that you go without. It is not the $20, as opportunity cost is never expressed in monetary terms.
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