Chapter 1.1, Problem 3R

To determine

To state: The reasons for considering scarcity and choice as basic problem in economics.

Explanation of Solution

There are limited resources and every resource has multiple uses. All economic activities require resources to produce goods and services to satisfy wants but we cannot assign resources to all the activities due to limited resources. The gap between the wants and resources is called scarcity.

The problem of scarcity is solved by making choices about the activity wanted and the activity that can be given up. Resources like land, labor, and capital is finite all over the world. Government or an individual both always make choice weather these finite resources should be used in one activity or more. Scarcity of time and money is experienced by all in day to day life and forces to make choices.

For example, suppose a student gets $10 as pocket money. The student wants to go for a movie and also wants to have an ice-cream. The price of an ice-cream is $10 and the price of a movie ticket is also $10. Since one has limited amount of money (resource),one cannot buy both the things so the choice needs to be between a movie ticket and an ice-cream.

Economics Concept Introduction

Introduction:

Scarcity of resources arises because there are limited resources and unlimited wants. Due to the limited amount of resources, people need to make choices about the things they want or the things they can forgo.