Decision-making under scarcity is a central problem in economics, arising because we have limited means to achieve our objectives. This process often involves choosing between several alternative courses of action that are mutually exclusive, meaning only one can be chosen. Economists model these scenarios by first identifying all feasible actions and then evaluating which action is best according to a given objective. A key element of this process is understanding opportunity costs, which represent the unavoidable trade-offs inherent in scarcity: choosing more of one thing necessarily means having less of something else.

Decision making under scarcity

According to Lionel Robbins's 1932 formulation, economics is 'the science that studies human behaviour as a relationship between given ends and scarce means which have alternative uses.' This influential definition frames the central problem of economics as choice under conditions of scarcity, where limited resources must be allocated among competing goals.

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A significant work by economist Lionel Robbins, noted in the text via its 3rd edition published in 1984 by New York University Press. This essay is the origin of the widely cited Robbins definition of economics, which focuses on the relationship between ends and scarce means.

An Essay on the Nature and Significance of Economic Science (Robbins)

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