Concept of Needs, Wants, Goods and Services
Senior 1 · Entrepreneurship
Concept of Needs, Wants, Goods and Services
Lesson 3 of 4
25 min
A maize cooperative in Kirehe District has saved Frw 3,000,000 over four seasons. At the general assembly, members make three proposals:
Each proposal needs the whole Frw 3,000,000. The cooperative can do only one. (An illustrative case.)
The cooperative's problem is the problem every person, business and government faces. Wants are unlimited, but the resources to satisfy them (money, land, time, workers) are limited.
Definition
Scarcity: the situation in which resources are limited compared with people's unlimited wants, so not every want can be satisfied.
Example: the cooperative has Frw 3,000,000 but three projects that each need all of it.
Definition
Choice: deciding which of several wants to satisfy with limited resources. Because of scarcity, every choice means giving something up.
Example: voting for the mill means voting against the truck and the safety fund.
Definition
Opportunity cost: the value of the next best alternative that is given up when a choice is made.
Example: if the cooperative buys the mill, its opportunity cost is the Frw 700,000 a year the truck would have brought.
A decision tree shows every option and what each is worth. The square marks the point of decision.
Worked example
The cooperative's decision
Step 1: rank the options by value. Mill Frw 900,000; truck Frw 700,000; bank Frw 150,000 (all per year).
Step 2: choose. The mill gives the greatest benefit, so the assembly chooses it.
Step 3: opportunity cost. The next best option is the truck, so the opportunity cost is Frw 700,000 a year.
Step 4: how much better is the choice? : the mill is worth Frw 200,000 a year more than the best alternative.
Warning
Count only the next best alternative. A common mistake is to add all the options given up: . That is wrong, because the cooperative could never have had both the truck and the bank fund with the same money. The opportunity cost is Frw 700,000.
When there are many wants and little money, list them in order of importance and buy from the top down.
Definition
Scale of preference: a list of wants arranged in order of importance, from the most urgent to the least, used to decide what to buy first.
Example: Uwase's list below.
Worked example
Uwase's Frw 2,000 (illustrative prices)
| Rank | Want | Price (Frw) | Running total (Frw) | Bought? |
|---|---|---|---|---|
| 1 | Bus fare home | 700 | 700 | Yes |
| 2 | Photocopies of notes | 800 | 1,500 | Yes |
| 3 | Mandazi for lunch | 300 | 1,800 | Yes |
| 4 | Airtime | 500 | (2,300) | No |
| 5 | Hair clips | 1,000 | No |
Step 1: after items 1 and 2 she has francs left.
Step 2: Frw 500 could buy the mandazi (rank 3) or the airtime (rank 4), not both. She follows her scale and buys the mandazi.
Step 3: the opportunity cost of the mandazi is the airtime, the next item she gave up. She has Frw 200 left to save.
Worked example
Time has an opportunity cost too (illustrative figures)
On Saturday afternoon Mugisha can either work 4 hours in his aunt's shop for Frw 750 an hour, or revise for Monday's mathematics test.
Value of the shop work:
If he revises, his opportunity cost is Frw 3,000. If he works, his opportunity cost is the revision time, and possibly a better mark. Opportunity cost is not always money.
Tip
A money habit: before any purchase over Frw 5,000, finish this sentence out loud: "If I buy this, I cannot…". Naming the opportunity cost stops many impulse buys.
Federal Reserve Bank of St. Louis, "Scarcity and Opportunity Cost" (Economics Explained, about 4 minutes). Watch for the definition of opportunity cost as the next best alternative, and check it against the cooperative's decision.
Practice
Sources and credits
Written by Ganzaa: the Kirehe case, the decision tree, the scale-of-preference table, the worked examples, the activity and the practice items. All figures are illustrative (2026).
