Question

Which assumption below best reflects a basic understanding economists have about the world?

1- The world has limited productive resources.

2- There are limited wants.

3- More output creates more wants.

Answer 1

The assumptions mentioned in the question have played roles in various theories at some point in time. And while some theories emphasized the use of one assumption over the others, others did the opposite.

The question, however expects us to pick the best that reflects the understanding of the economists, thus, the third assumption, I believe would be an important pick.

If we look at the first two assumptions, although they have been widely used in economic theories to conclude various hypothesis, in the real world, they have been time and again challenged. Yes, the world seems to have limited resources, however, productive resources seem to improve over the period of time. Human Capital is one such resource.

There are limited wants, but in the modern era, the scope of wants seem to expanding, however they may be limited, but the limit seem to not have been defined just yet.

However, the third, still seems to be valid. Our market based economies seem to absorb whatever output is generated. More output leads to more wants. The chain goes like this- More Output, means more sales, more sales, means more revenue, more revenue means more profit and more profit means more demand.