Please describe the two-fold manner in which an economy demonstrates its purpose in addressing the issue...

Please describe the two-fold manner in which an economy demonstrates its purpose in addressing the issue of scarcity.

Expert Solution

Scarcity is one of the basic concerns in economics. The issue of scarceness implies we have to decide 'how' & 'what' to manufacture from limited resources. It implies there’s a continual opportunity cost involved in economic decision-making.

Economics resolves the issue of scarceness by placing a greater price on scarce products. The high price dissuades demand & fosters corporations to develop alternatives.

If we take a product such as oil. Its reserves are limited; there’s a scarceness of the raw material. As we utilize the oil reserves, its supply will begin to diminish.

If there's a scarceness of a product the supply will be declining, & this causes the level of price to increase. In a free market, this augmenting price acts as a sign & thus demand for the product reduces (movement along the demand curve). Additionally, the greater price of the product provides incentives for corporations to-

Search for alternative sources of the product
Look for substitutes , for example, solar panel vehicles.
If we’re unable to obtain substitutes to oil, then we would have to react by utilizing less transport. Persons would cut down on transatlantic air travel & make lesser trips.

In the short run, price elasticity for demand is low . Persons with petrol automobiles, need to keep purchasing petrol. But, over time, persons may purchase electric automobiles / bicycles, thus, the demand for petrol diminishes. Price elasticity for demand is greater over time.

Thus, in a free market economy, there are incentives for the market processes to tackle the concern of scarcity.

Rahul Sunny answered 1 year ago

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