Policy Brief - Price Effects, Scarcity and Opportunity Cost - Essay Example

Public Policy and its Impacts Name of Student Student Number Institution of Affiliation Course Code Instructor Date of Submission Policy Brief: Price Effects, Scarcity and Opportunity Cost Introduction The current economic challenge facing every individual pertains to the scarcity of resources and the demand of satisfying their needs and wants bringing about increased opportunity cost. Amid the fact that the law of demand and supply rules the availability of goods and services in a given market, the satisfaction of any need or want is determined by choice and resource availability. The choice of engagement and expense made by an individual culminate into the overall outcome of the opportunity cost. Scarcity arises in economics as the fundamental problem that brings about increased opportunity cost in the event of lack of choice (Haskins and Sawhill 2009). Citizens are faced with increased scarcity of intended choices amid diminishing resources to satisfy their needs and wants. The lack of sufficient resources brings about variance on the overall opportunity cost in the economics of a given individual. Further, statistical variation of increasing opportunity cost sources solely lies within variability of resources. The choices made keep the value of opportunity cost varying with other factors being observed apart from monetary values. Individuals are left with the option of making choices at the expense of limited resources escalating the level of opportunity cost. Evidence of the Problem Magnitude Normally, the central purpose in the economic activities is to produce goods and service necessary to satisfy given needs and wants which keep changing with time (Mceachern 2006). Nevertheless, the basic problem within the economic precincts lies with scarcity and choice. Every given individual and society has to make decision and choose the most appropriate and crucial needs in their lives. Amid the fact that scarcity is a reality, choices have to be made by consumers, business persons and government authorities with respect to the needs at hand and the resources available (Ferraro and Taylor 2005). The key aspect in this regard lies on decision making pertaining to choices made. In the event an individual sacrifices one need or want to obtain another; this brings about the concept of a ‘trade-off’. It is worth noting that trade-offs create opportunity costs which is a critical concept in economics (Mankiw 2004). For example in the event a parent has a $300 to spend on buying a present to his son who has asked for a bike and a snowboard. Since the available resources are not enough, the parent decides to forego the snowboard and buys a bike with the funds. The price of the snowboard becomes the opportunity cost in this context. There are concrete facts that resources are always scarce; nevertheless, the scarcity of physical resources appears to be more critical that funds scarcity (Hamermesh 2010). Majority of individuals are faced with the difficulty of making effective choices of wants in their lives due to economic goods being limited. Further, the concept of opportunity cost is crucial in respect to making sure that the scarce resources are utilised efficiently (NBCI 2006). Opportunity costs are not restricted solely to financial costs but incorporate real cost of output foregone, time lost, pleasure or any probable benefit which could bring about utility and be considered as opportunity cost. Increased opportunity cost source lies with variability of resources (Gans, King and Mankiw 2009). In respect to third rule of inequality, it is worth stating that resources are known not to be all the same. A number of resources are best suited in production of one form of need and others suited in the end process of making the product marketable. All these resources have been utilised to create the product and avail it to consumers but in the real sense, some of the resources are more productive in respect to processing of the product whereas others are much less so. This brings up the idea of resource allocation, whereby the ones which appear less contributing to the creation of the product can be utilised elsewhere to make more production (Haskins and Sawhill 2009). Such interventions create more contextual aspects within utilisation of cost-effectiveness analysis. In the event of policymakers making decisions to make resource allocations, it is worth making observations in respect to interventions that are relatively more or less cost-effective within the prevailing state of supply and demand. Policies Addressing the Problem Resources available are not completely suited to every form of use, this is in respect to the fact that it lies in the specificity of resources. The fact that one resource is more suited towards production of a given product in respect to others brings about the reality of choice (Ferraro and Taylor 2005). In line with the scarcity and choice aspects, various policies across diverse economies have been put in place with the greater aim of ensuring all factors of production as well as consumers emerge satisfied in the eventual run. This mainly lies with regard to ensuring protection of the end user of commodities produced (Rockoff 2008). Amid increased value of the factors of production, price control works effectively to ensure that commodity availability is enhanced and consequently the opportunity cost of foregone choices is left at manageable levels. The policies evaluated in this regard pertain to price control and incentives for opportunity cost. Price controls have been put in place by governments from time immemorial by trying to set maximum or minimum prices (Hamermesh 2010). However, the introduction of price controls in form creating price ceilings or price floors have been criticised by economist in the sense that they contribute directly towards distortion of resource allocation. Price ceilings prevent prices from exceeding a given maximum resulting to shortages whereas price floors on the other hand prohibits prices below given limits and results to surpluses for some time (Rockoff 2008). Due to the fact that price controls have an effect on the pricing system from rationing the supply availability, it is worth noting that some other mechanisms ought to take place. These are in respect to the free market commodities and consumer goods whose price appears well regulated by the law of supply and demand (Haskins and Sawhill 2009). However, in regard to community and societal projects or affairs utilising public resources, control of funds utilised greatly ensures accountability and manages the value of opportunity cost. Government policies should critically address spending priorities of revenue and resource allocation (Trenerry 1999). For examples, the opportunity cost of the UK government spending close to £8 billion investing on the National Health Service means that probably that £8 billion less is available to utilise on matters education or transportation network. Second policy pertains to incentives which bring about relief to both traders and consumers within a given market where they have been introduced (Mankiw 2004). Individuals respond in predictable manner to both positive and negative incentives. In essence, both incentives have a direct effect to the choices and behaviours made by individuals. Consequently, changes in incentives make people to change their behaviour in a way that can be predicted (Hamermesh 2010). The introduction of incentives targets the opportunity cost factor and they can be in monetary or non-monetary terms. Opportunity cost measures the value of any given choice in respect to the nest best alternative foregone (Haskins and Sawhill 2009). In this regard, acting as consumers, producers, workers and other citizens respond to incentives so as to allocate their limited resources in ways that provide the highest possible returns. In conclusion, incentives can be termed as rewards or penalties that have the capacity to shape the choices of people (Mankiw 2004). In the event of changing incentives, the opportunity cost changes and eventually the choice and behaviour of consumers also changes. Amid the fact that prevailing policies have not fully addressed the issues affecting every individual economically in respect to scarcity and opportunity cost, the following policies are worth made effective: Low Income Public Service Delivery: individuals in the low income brackets should be addressed through policy formulation aimed at looking into their plight in respect to social issues like health, transportation and basic needs access. Through reduced expenses, such individuals can acquire reprieve of the increased opportunity cost in the event of foregoing quality to affordable health care or transport services. This can be achieved through introduction of quality and affordable health and transport services for the low income earners by the government. Affordable Social Amenities and Housing: with increased expenses and lack of sufficient resources, many families ignore the available leisure services since they appear expensive and not affordable. Consequently, amid availability of housing services from government authorities, lack of sufficient resources makes the option of acquiring desirable homes a great opportunity cost to many. With policies targeting affordable home ownership programmes, individuals can acquire opportunities to plan on how to get their dream homes. Critical Discussion The law of demand and supply dictates the satisfaction of wants among people and consequently the availability of resources determines the level of satisfaction (Rockoff 2008). With increased opportunity cost in terms of monetary and non-monetary resources, individuals are faced with great dilemma concerning their level of satisfaction. According to Gans, King and Mankiw (2009), crucial variables that affect the shift in demand curve involve customer income, expectations, tastes and choices, volume of buyers and prices of substitutes. Nevertheless, the major goal aims at prioritising the effectiveness of available resources to meet the demands of users within a given range of satisfaction scale. Effective application of resources means spending money on things that satisfy basic needs in the life of an individual (Mceachern 2006). In this context, the opportunity cost remains the leisure of needs that one can carry on with life without them. Within public domains where resources utilisation span major groups of people and consequently have a greater impact in the community, determination of the best allocation of public funds becomes a priority (Trenerry 1999). The case of a given community in need of a hospital and sports ground with prioritisation would mean foregoing the latter and its cost becomes the opportunity cost for the community. The implementers of policies placed within public domain require crucial information concerning the relative cost to establish the combination of interventions that can result to great improvements in community projects (NBCI 2006). The central aim of any given economic activity is to produce goods and services worth satisfying the ever changing needs and wants (Mankiw 2004). Nevertheless, the biggest challenge comes in respect to making choice for the best option of need or wants which in turn contributes directly to the opportunity cost variance. Nevertheless, the cost of acquiring a product greatly determines the overall outcome as well as the satisfaction (Hamermesh 2010). The economy in a given state contributes towards availing resources necessary in building amenities that are crucial in changing the lives of individuals. Factors of production are crucial in the eventual uncovering of arising needs and wants (Trenerry 1999). However, scarcity is a critical aspect in the economic venture and the arise of opportunity cost due to the fact that it leads to making of choices by consumers, businesses and governments to realise given targets and desires. This brings up the aspect of cost-effectiveness which helps identify opportunities that are neglected and highlights interventions that are cheaper but have the potential to ease the prevailing problem (Gans, King and Mankiw 2009). Conclusion In conclusion, the fact that scarcity and opportunity cost remain key aspects in the field of economics, there is need for continued review of price control policies to ensure the end consumers are not vulnerable due to increased costs. Subsequent policies ought to also address the means of looking into the law of increasing opportunity cost and its effects to the end consumers. Subsidised production has not brought about affordability neither has policy formulations aimed at curbing overpricing of goods. It is therefore worth noting that market management will result from increase resource allocation in respect to ensuring the society acquires basic needs effectively. Further, the aspect of increased opportunity cost remains a reality with resource variability in all sectors of economy. It is therefore a clear fact that policy review and re-introduction should be a continuous process to effectively address arising challenges in the economics of life. Reference List Ferraro, P. and Taylor, L., 2005. Do Economics Recognise an Opportunity Cost when they see one? A Dismal Performance from the Dismal Science. The B.E. Journals in Economic Analysis and Policy. Manuscript 1469. Gans, J., King, S. and Mankiw, N., 2009. Principles of Microeconomics, 4th ed. South Melbourne, Australia: Cengage Learning. Hamermesh, D., 2010. Economics is everywhere. 3rd ed. London: Worth Publishers. Haskins, R. and Sawhill, I., 2009. Creating an Opportunity Society. Washington, D.C.: The Brookings Institution. Mankiw, N., 2004. Principles of Economics. 3rd ed. Mason, Ohio: Thompson South-Western. Mceachern, W., 2006. Economics- A Contemporary Introduction. Thompson South Western, Mason, OH. NBCI, 2006. Cost Effectiveness Analysis, Priorities in Health. Geneva: The International Bank for Reconstruction and Development/ The World Bank. Rockoff, H., 2008. Price controls: The Concise Encyclopaedia of Economics. Liberty Fund, Inc. Trenerry, A., 1999. Principles of Internal Control. Sydney, Australia: University of New South Wales. Read More