Scarcity means we have unlimited wants, but limited resources Because resources are limited, we must make choices and these choices involve a cost. This is the opportunity cost. The opportunity cost of any decision is the next best alternative to what was chosen. Steel is used to make both cars and refrigerators.
Consumers greatly value products like refrigerators that are made with steel.
If the market is working well the price system assigns a high price to steel. The early European settlers destroyed much of the forests and buffalo herds because they had low market value. However, the opportunity costs for future generations was very high. Notice the opportunity costs of using land for growing soybeans and wheat. Use this information to develop the production possibilities frontier.