Explain why scarcity leads to trade-offs.

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Expert Solution

A fundamental concept in economics is that of scarcity. In contrast to its colloquial usage, scarcity in economics connotes not that something is nearly impossible to find, but simply that it is not unlimited. For example, the number of available hours in a day is a scarce resource: there is a finite amount of time available to you to do work, hang out with friends, and relax. Most resources are scarce in most situations.

Since resources tend to be scarce, anyone that uses the resource has to make a decision about how to use it. Suppose, for example, that you are a drink manufacturer. To produce a beverage, you have to use some scarce resources: the plastic for the bottle, the workers' time, a machine to fill the bottles, etc. If you choose to make one bottle of water, you have chosen to not make a bottle of soda. Your scarce resources force you to make a choice and a trade-off producing one product or another.

Rahul Sunny answered 1 year ago

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