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JA1. Student Scenario: Scarcity and Opportunity Cost

Statement

Through this assignment, you will uncover the practicality of economic literacy and decision-making, aligning with the Unit Learning Outcomes (ULO): Explain the concepts of scarcity and opportunity cost and how they relate to the definition of economics.

Imagine yourself as a full-time student, meticulously managing academics, work, and personal responsibilities. Your monthly budget is carefully allocated to cover essential expenses like tuition, rent, groceries, transportation, and investing in your education.

Now, picture this scenario: one evening, you’re faced with a decision. On the one hand, there is a scholarship opportunity to further your studies in your chosen field. On the other, there is a part-time job offer that aligns perfectly with your career goals. Both choices are attractive, but you can only pick one because of certain limitations.

  1. Explain how the scenario showcases scarcity in your life. What specific resource was limited, and why was it crucial in your decision-making?
  2. Discuss the trade-offs (or alternative options) you considered when making your decision. Identify the opportunity cost associated with your decision.
  3. Reflect on a different personal or professional scenario where scarcity and opportunity cost played a role. Discuss the scenario and explain how scarcity and opportunity cost influenced your decision-making.
  4. How do these concepts link to the broader field of economics, and why are they fundamental to understanding economic principles?

Answer

Introduction

Student years, especially full-time undergraduates, are an interesting period of life where your physical and exploration desires are at highest; however, the financial constraints are also at their peak and choices made during this period can have long-lasting impacts on your future. If I have to choose between a scholarship opportunity and a part-time job offer, I would choose the scholarship opportunity.

This text will discuss the reasoning behind choosing the scholarship opportunity over the part-time job offer, exploring the concepts of scarcity and opportunity cost in this choice, and in the alternative scenario. It will also link these concepts to broader economic principles.

Scarcity in the Student Scenario

Scarcity is a fundamental concept in economics, referring to the limited availability of resources compared to the unlimited wants and desires humans have. It implies that for getting one thing, we must give up something else called the alternative. The opposite of scarce resources is free resources, which are available in abundance and do not require trade-offs like outer space (Rittenberg & Tregarthen, 2009).

In the student scenario, the resource that is scarce is time. As a full-time student, I have limited time to allocate to various activities, including academics, work, and personal responsibilities. The scholarship opportunity and the part-time job offer both require a significant time commitment, and I can only choose one due to the scarcity of time.

Trade-offs and Opportunity Cost

Opportunity cost is the value of the next best alternative forgone when a choice is made; that is, the cost of a choice as the value of alternative choice is lost. Sometimes, opportunity cost is not monetary but we try to monetize it approximately to make the comparison easier (Rittenberg & Tregarthen, 2009).

In choosing the scholarship over the part-time job, the opportunity cost is the loss of potential income and work experience from the job. The experience gained is rarely of value in the comparison as it highly unlikely that the job will be in the same field of my study.

The income may seem a significant amount compared to student’s usual expenditures. However, delaying the short-term income for a greater long-term benefits is a wiser choice especially as people who are better educated tend to earn more in the long run (Mueller, 2023).

There are some hidden or indirect costs of not choosing the job such as the loss of networking opportunities and career advancement; however, this depends on the type and the nature of the job which is not specified in the scenario.

I choose the scholarship after doing a cost-benefit analysis as I found the long-term benefits of being better educated than my peers could give me a comparative advantage in the future job market, and any income lost in the short term can be compensated very quickly after graduation.

Reflection on a Different Scenario

In a different scenario, a few years ago, I had to choose between freelancing (also known as contracting or self-employment) and a full-time job offer. I choose the full-time job as it provided benefits such as steady income, retirement plans, paid holidays, flexible hours, and budget for training and development; despite it paid less than freelancing.

The opportunity cost of choosing the full-time job was the loss of higher earning through freelancing and the ability to work on diverse projects. However, choosing freelancing would mean that I have to be responsible for my own taxes, accountants, retirement, and harder to get credit or loans if needed.

I chose the full time job after doing a cost-benefit analysis as I found that the income boost from freelancing becomes very marginal after considering all factors and not just the direct income.

The scenarios discussed here relate to many economic concepts such as scarcity, opportunity cost, trade-offs, cost-benefit analysis, production possibilities frontier, and human capital. All of these concepts belong to the microeconomic branch of economics, which focuses on individual decision-making and the allocation of resources.

Understanding the above concepts is crucial for making informed decisions personally or on behalf of a client (as an economist or financial advisor). It helps in comparing choices and choosing the one that maximizes output or in the best of self or client’s interest. They also form the basis for further studies in economics as a lot of economic theories and models are built on these concepts.

Conclusion

Time is a scarce resource, especially for students, as the way they allocate their limited time greatly impacts their entire future. Our discussion has led us to choose the scholarship opportunity over the part-time job offer as long-term benefits of the study exceed the opportunity cost of the job.

We also discussed another scenario of choosing between freelancing and full-time job; and our choice was the full-time job due to the benefits it provided exceeding 1.5 times the income of freelancing.

References