Scarcity and Opportunity Cost in a Real World

Scarcity. Scarcity. What is the general meaning of this phenomenon, which we can hear from different resources like TV or radio more and more often? This term has already become the central problem of economy studies.  Economists explain this in a very simple way: people or firms have unlimited wants, but all resources to satisfy us are limited. In terms of production, for firms those resources are land, labor and capital. In terms of people and our whole planet, scarcity can appear in face of shortage and lack of water, fuel, food, wood and even corn. In my writing I will introduce you with scarcity of water and food, which lead to opportunity cost as a consequence of limited resources (Investopedia, 2013).

I believe that many of you heard about Africa and Third World countries like Angola, Kenya, Nigeria, South Africa and the level of life there, and I am sure that you were shocked and would never wish to live there. This is the result of scarcity of main resources required for maintaining nation’s physical health. And one and the most important lack that this continent experiences - is water scarcity. The reason lies in the fact that the African continent is mostly covered with dry zones, that is where natural reason of scarcity rises, at the same time Africa is only on its developing stage, it is very poor part of our planet, hence, it has not strong industrial institutes that generate billiards and provide the whole nation with high gross national product. 

So one of Africa’s earnings’ sources is exporting grain overseas.  Therefore 88% of all fresh water is wasted necessary to irrigate crops. To produce 1 ton of crops, 1,000 tons of water is consumed per 1 year. So now it is easy to imagine why only 22% of fresh water goes to people. Additionally another issue is rising: Africa is the continent of high population growth, and no doubts, it will lead to even larger lack of water (Danilov-Daniliyan and Losev, 2006). United Nations World Population Prospects states that in 2010 population of Africa reached 1 billion people, and this trend is still rising. By 2025 and 2050 the population is expected to reach 1.4 and 1.9 billions respectively. Like that every third child on the planet will be from Africa, but how is it possible to provide each child and family with water at least to be able to survive? This problem is still one of the most widely discussed problems nowadays (Nogueira, 2012).

 

Thus, Africa – is a victim of vital water scarcity, and reasons lie in several factors: dry and lifeless geographic location, irrational waste of water for agriculture, population’s very high growth and underdeveloped level of economy. What solution is appropriate for this particular case? Unfortunately, factors are too weighty to be easily removed, and there is no positive forecast for Africa in terms of ability to provide people with water.

The lack of water in the future will affect not only Africa, but also the whole world in terms of food scarcity. According to Census Bureau, International Database by 2050 the world’s population will grow to 9 billion and it is going to be very hard to feed everyone, because for the cultivation of plants and animals a huge amount of water, which is also not enough, is needed (Heywood, 2010). That is how another type of food scarcity is coming out. Also the biggest water consumer in agricultural industry is a cattle breeding. It consumes 5 times more than any other type of agriculture. So it is obvious way out to reduce hunger in future – to reduce meat eating and switch to vegetable food (Pravda, 2012). 

But this is only one possible solution, because there is another reason of people’s possible hunger – high unattainable cost. According to Jean Ziegler, Special Rapporteur of the UN organization, over the past time, the average price of rice has increased by 52% and the grain since the beginning of this year has risen in price by 84%. It is terrible to imagine that if previously every 5 seconds one child died because of hunger before even reaching their age of 10, what consequences are awaiting the world in future because of food scarcity. There are no doubts that this problem will touch third world countries like Zimbabwe, Uruguay, Tanzania, Argentina, because the difference in spending family’s monthly budget for food is extremely huge. So, if for instance Americans and Europeans spend from 10% to 20% of their month income on food as it was stated by Ziegler, then poorest countries’ citizen have to spend from 60% to 90% of their income only on food to be able to stay alive. 

Unfortunately, with the trend of subsequent increase in food prices, the third world will hardly be able to buy expensive products for the pitifully small salary, hence, people will switch to vital products that are lacking and it is impossible to avoid food scarcity. This situation is still the keenest discussion topic for United Nations. As UN analytics think, deepening food crisis is comparable to terrorist threats as it can lead to war and riots. The reason is that in order to stay alive, human nature will go for everything; parents of their children are able to commit any illegal actions just to feed their children. That is why food scarcity can provoke a war, since in some Latin, Asian and African countries riots have already took their place as a consequence of increasing price for food. 

A Tunisian protester holds a baguette while taking to riot police in January 2011.

So what is another solution for reducing food scarcity? UN specialists offered to provide the poorest countries with food, and the main food providers are supposed to be European and North American countries. Besides, larger investments into agriculture will also help to settle crisis problem, but even if this actions are performed, threat of global food scarcity will still hang over the world (Utro.ru, 2013).

   

   Opportunity Cost.Next interrelated economic event with scarcity is opportunity cost. When there is a scarcity of anything, we should trade off one object for another to get required product, and this value of exchanging one product for getting another will be opportunity cost. Economics terminology defines opportunity cost as what we should give up in order to get and buy what we want, hence, the value of a product that we gave up will be considered as a forgone opportunity (NetMBA, 2010).

When we are going back to scarcity problem, we can see how opportunity cost theory works in reality. For instance, when people experience lack of sufficient budget, they should make a choice. So here, where all problems from my writing like food, water scarcity and limited budget meet. Let’s go a little bit further. For example, according to salary survey, in Kenya average salary equals to 153,127 KES per month, converting to United States Dollars it is approximately $ 1800 per month (Salary Explorer, 2012). So, if from above stated percentage about African countries, expenditure for food from the budget is from 60% to 90%, that means that a person can spend for food $3.6 per day only. (1800$/30 days=$60; $60*60%= $ 3.6$). Since this budget is very small, person should be able to make a right choice, connected with which type of product to buy. Let’s say those products are water and vegetables. Consider the case of Kenyan citizen who wants to spend his $3.6 for 5 liters of water or 5 kilograms of vegetables. So, if he decides to buy only 5 liters of water for $3.6, the opportunity cost will be 5 kilograms of vegetables that he also could buy, but he had to give up this opportunity in order to buy water, which is more essential for human survival. Opportunity cost also help to understand the benefits of making particular decisions. On the example of water and vegetables (see the graph) it can be said that it is rational choice is to buy 4 liters of water and only 1.5 kilogram of vegetables to satisfy daily human’s nutrition needs, because water is much more essential and important part for human physical health rather than food. The proof lies in the fact that people can stay alive without food for approximately 3 weeks, but without water, person will die after 8-10 days only (Binns, 2012). Also opportunity cost is directly related with Production Possibility curve, which shows combination of 2 goods that can be produced, as well as in our case it is combination that should be consumed by a human.

 To conclude, it is the fact, that scarcity and opportunity cost are closely interrelated in reality, because despite all attempts to reduce food and water scarcity, it still exists and becomes more, and this results in people’s necessity to be able to make a right choice between several options, if they just simply want to stay alive.

References

Binns, C. (2012) How Long Can a Person Survive Without Water? Available from: http://www.lifeslittlemysteries.com/229-how-long-can-a-person-survive-without-water.html [Accessed 13 May 2013].

 Danilov-Daniliyan, V. and Losev, K. (2006) Water Consumption. Environmental, economic, social and political aspects [online]. Moscow: Science. [Accessed 10 May 2013].

 Heywood, T. (2010) World Population Growth in History. Available from: http://highwayfive.hubpages.com/hub/World-Population-Growth-in-History [Accessed 12 May 2013].

 Investopedia (2013) Scarcity. Available from: http://www.investopedia.com/terms/s/scarcity.asp [Accessed 09 May 2013].

 NetMBA (2010) Opportunity cost. Available from: http://www.netmba.com/econ/micro/cost/opportunity/ [Accessed 13 May 2013].

 Nogueira, T. (2012) Africa’s population boom. Available from: http://www.worldreview.info/content/africas-population-boom [Accessed 10 May 2013].

 Pravda.ru (2012) The mankind will have to turn to vegetarianism as a consequence of food scarcity [online] 27 August. Available from:http://www.pravda.ru/news/society/27-08-2012/1126233-go_vegan-0/ [Accessed 14 May 2013].

 Salary Explorer (2012) Salary Survey in Kenya. Available from: http://www.salaryexplorer.com/salary-survey.php?&loctype=1&loc=111 [Accessed 13 May 2013].

 Shirayeva, N. (2013) Food deficit would plunge the entire world into chaos. Utro.ru [online] 14 April. Available from: http://www.utro.ru/articles/2008/04/14/730710.shtml [Accessed 13 May 2013].