This exercise is from English, Economics & Management, a book which  is an adaptation by Prof Rajiva Wijesinha of the original volume by Gartney and Stroup that presented basic economic principles simply. The principles are essentially liberal, but their universality will be clear in the context of the development of social and economic theories all over the world in the last few decades. 

I am grateful to Michael Walker of the Canadian Fraser Institute for encouraging me to use this text for English Teaching. The book should be used in conjunction with A Handbook of English Grammar (Foundation Books, Cambridge University Press, India). The full text of English, Economics & Management, as well as other  English books and materials that can be downloaded to enhance your English knowledge, can be found on the website of the Liberal Party of Sri Lanka. 


Scarcity, the fact that things are in limited supply, constrains us, that is it places limits on us. One of the most important facts of life on our planet is that productive resources are limited. However, human desires for goods and services are virtually unlimited. Since we cannot have as much of everything as we would like, we are forced to choose among alternatives.

When resources are used to produce good A, say a shopping centre, that action takes resources away from the production of other goods that are also desired. The shopping centre is then the highest valued from the set of goods that could have been produced and consumed for the required cost. The others now must be sacrificed, because the required resources were used instead to produce the shopping centre. The use of resources to produce one thing reduces their availability to produce other things. Thus, the use of scarce resources always involves a cost. To use a common English saying, there is no such thing as a free lunch.

Costs play an extremely important function. They help us balance our desire for more of a good against our desire for more of other goods that could be produced instead. If we do not consider these costs, we will end up using scarce resources to produce the wrong things—goods that we do not value as much as other things that we might have produced.

In a market economy, consumer demand and producer costs perform this balancing function. In essence, the demand for a product is the voice of consumers instructing firms to produce a good. In order to produce the good, however, resources must be taken away from their alternative uses—primarily the production of other goods. Producers incur costs when they take resources away from the production of other goods. These costs, what the producers give up, can be represented as the voice of consumers saying that other goods that could be produced with the resources are also desired. Producers have to choose which goods to produce. Naturally they will be strongly inclined, or have a strong incentive, to supply those goods that can be sold for as much or more than their production costs. This is another way of saying that producers will tend to supply those goods that consumers value most relative to their production costs.

Of course, a good can be provided free to an individual or group if others foot the bill. But this merely shifts the costs; it does not reduce them. Politicians often speak of ‘free education’, ‘free medical care’, or ‘free housing’. This terminology is deceptive. None of these things are free. Scarce resources are required to produce each of them. For example, the buildings, labour, and other resources used to produce schooling could be used instead to produce more food, recreation, entertainment, or other goods.

The cost of the schooling is in fact the value of those goods that must now be given up because the resources required for their production were instead used to produce schooling. Governments may be able to shift costs, but they cannot avoid them. The concept that ‘scarce resources have a cost’ applies to all things.

With the passage of time, of course, we may be able to discover better ways of doing things and improve our knowledge about how to transform scarce resources into desired goods and services. Clearly, this has happened over the years. During the last 250 years, we have been able to relax the grip of scarcity and improve our quality of life. However, this does not change the fundamental point—we still confront the reality of scarcity. The use of more labour, machines, and natural resources to produce one good forces us to give up other goods that might otherwise have been produced.


 Grammar and Sentence Structure

  1. Identify the nouns and adjectives in the last three paragraphs. Use five of each of them in sentences of your own to bring out their meaning.
  2. Rewrite the first paragraph in the past tense.
  3. Identify the pronouns in the first three paragraphs and say to what each of them refers.
  4. Identify the prepositions in the last three paragraphs and use them in sentences of your own.
  5. Divide the sentences here that are combined with conjunctions into separate sentences.
  6. Using conjunctions, join three pairs of simple sentences in this passage.


  1. In groups, work out from their context the meanings of the highlighted words, and use them in sentences of your own.
  2. Find words or phrases in the last five paragraphs of this passage that are used to convey meanings similar to the following – Rare, wanted, compels, think of, move, relaxation, face, pay, change, loosen,

Use both the words or phrases in the passage, as well as those given here, in sentences of your own.


  1. Summarize the main argument of this passage in not more than five sentences.
  2. Give arguments for and against the point the writer makes about ‘free’ education.