What does the concept of scarcity explain? Choose three answers. Which statement best describes the impact of scarcity?
The Correct Answer and Explanation is:
Correct Answers to “What does the concept of scarcity explain? (Choose three):
- Why people must make choices
- Why goods and services have value
- Why resources are limited
Best statement that describes the impact of scarcity:
“Scarcity forces individuals and societies to make choices about how to allocate limited resources.”
Explanation
Scarcity is a fundamental concept in economics that arises because resources—such as time, money, labor, raw materials, and land—are limited, while human wants and needs are virtually unlimited. This imbalance creates the need for choice and prioritization, affecting individuals, businesses, and governments alike.
Firstly, scarcity explains why people must make choices. Since we cannot have everything we want due to limited resources, we are forced to decide what to produce, how to produce it, and for whom it should be produced. For example, a farmer with limited land must choose whether to grow corn or wheat; similarly, a government with a limited budget must choose between spending on healthcare, education, or defense.
Secondly, scarcity gives goods and services their value. If everything were abundant and freely available, nothing would have economic value. Diamonds, for example, are expensive not just because of their desirability but because they are scarce. In contrast, air, though essential to life, is free because it is abundant and not scarce under normal conditions.
Thirdly, scarcity highlights that resources are limited. This limitation drives the entire study of economics, which seeks to understand how to best allocate these finite resources to meet society’s needs and wants.
The impact of scarcity is most clearly captured by the idea that it forces individuals and societies to make choices. Every decision involves opportunity cost—the value of the next best alternative given up. For instance, choosing to spend money on a vacation means giving up the opportunity to save or invest it. On a societal level, choosing to allocate more funds to military spending may mean less funding for social programs. Thus, scarcity is the root of all economic decision-making and trade-offs.
