What economic model is used to describe the trade-offs faced when resources are limited?

The concept of opportunity cost is fundamental in economics and is used to describe the trade-offs individuals and societies face when resources are limited. When we make a choice to allocate resources—be it time, money, or labor—we must consider what we are giving up in order to pursue that choice. The opportunity cost represents the value of the next best alternative that is foregone when a decision is made.

For example, if a student decides to spend time studying for an exam instead of working a part-time job, the opportunity cost is the wages they could have earned during that time. This highlights the necessity of evaluating the benefits of different options when making decisions, capturing the essence of trade-offs in a world of scarce resources.

In contrast, elasticity refers to the responsiveness of demand or supply to changes in price or income and does not specifically address trade-offs. Market equilibrium focuses on the points where supply equals demand, and monopoly power pertains to the control a single seller may have over a market, neither of which directly encapsulate the concept of trade-offs in resource allocation. Thus, opportunity cost is the most appropriate choice for describing the trade-offs faced when resources are limited.