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The Theory of Choice

In: Microeconomics

Author

Listed:
  • R. Shone

    (University of Sheffield)

Abstract

The student learns very early that economics is concerned with choice. It is argued that because goods are scarce or because income is limited an individual or an economy must make choices. In the standard textbook of Lipsey we see the phrase, ‘Choices are necessary because resources are scarce’ [76, 3rd ed., p. 50]. He goes on to say, ‘Because resources are scarce, we are forced to choose. A choice means that you have one thing or the other [but not both]’ (p. 51). The same argument can be found in Samuelson [108, 9th ed., pp. 17–30]. The argument appears to be that goods which are not scarce will not command a price, or that their price will be zero.1 Choice is then illustrated for an economy as in Fig. 2.1 by the use of a production possibility boundary showing that a country, when on the boundary, must choose between x1 and x2, and to the extent that it gives up x2 for more x1 the slope denotes the opportunity cost of choosing x1 in place of x2.

Suggested Citation

  • R. Shone, 1975. "The Theory of Choice," Palgrave Macmillan Books, in: Microeconomics, chapter 2, pages 17-44, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-15593-4_2
    DOI: 10.1007/978-1-349-15593-4_2
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