Question

In the following concepts of economics provide a discussion of the meaning as well as the relevance of the concept to the decision making process: incentives, scarcity, opportunity cost. Discuss what value you think these concepts provide as well as any deficiencies.  

Answer 1

Incentives initiate innovation and ability to do more than is required. It provides a motive for a particular action, making people better off. Deficiency of incentives could be that they are not being monitored efficiently leading to excess monetary payouts for a company.

Scarcity induces people to allocate resources efficiently in order to satisfy basic needs and wants of people. It plays a very important role in this world economy as resources are increasingly going scarce. The concept of scarcity lacks in sometimes completely allocating resources efficiently, creating inefficiencies and high cost of products.

Opportunity cost is a very important concept in economics, it is considered that one losses out on one product to get another in its place. This proves beneficial in decision making if going to a movie, one is able to gain by giving up on dinner at the same price. The deficiency of this concept is that it considers one thing which is done in place of another, when in fact people sometimes do both the things and don't lose out much.