A regional health authority is allocated a fixed annual budget of £15 million\text{£}15 \text{ million}£15 million to distribute between elective surgical procedures and preventative community health initiatives. To fully meet the demand for elective surgeries requires £11 million\text{£}11 \text{ million}£11 million, while fully funding the community initiatives requires £7 million\text{£}7 \text{ million}£7 million. Which of the following statements best describes the fundamental economic reality of this allocation problem?
The authority faces scarcity because its total desired expenditure (£18 million\text{£}18 \text{ million}£18 million) exceeds its budget (£15 million\text{£}15 \text{ million}£15 million), meaning that trade-offs and choices are inevitable.
If the budget is increased to £20 million\text{£}20 \text{ million}£20 million in the following year, the economic problem of scarcity will have been completely eliminated for this health authority.
The opportunity cost of choosing to fully fund elective surgeries (£11 million\text{£}11 \text{ million}£11 million) is the £4 million\text{£}4 \text{ million}£4 million that remains to be spent on preventative health initiatives.
Because resources are scarce, a central planning authority must allocate the budget, as market mechanisms are incapable of operating under conditions of resource scarcity.
123 exam-style questions on AQA A Level Economics 1.1 Economic methodology and the economic problem, covering 1.1.1 Economic methodology, 1.1.2 The nature and purpose of economic activity, 1.1.3 Economic resources, 1.1.4 Scarcity, choice and the allocation of resources, and 1.1.5 Production possibility diagrams. Each one has a worked solution and a mark scheme showing where the marks go.