Question

1.There are certainly many exceptions to the “fact” of scarcity in economics. For example, I can turn on the tap and have all the water I want. Therefore there is no scarcity of water.” Critically evaluate.

2.      A friend of yours expresses the opinion that the only resource that is important in the macroeconomy is money. He says, “The more money an economy has, the richer it is.” How would you respond?

Answer 1

1.

When it is said that resources are scarce, then it relates to the resources available to an economy or whole human community at large. Scarcity of resource does not mean to be individualistic in nature. It is the reason that makes water to be a scarce resource even if a person gets it in abundance via tap. For example, a person is those areas near deserts, have water in a very less amount that makes water to be scarce and it is about the whole community. On a similar note, a water with drinking quality is scarce and comes at specific time, even if raw water can be get at any time. So, drinking water is scarce and it requires to be purchased outside. Hence, scarcity should be viewed in a broader scope to make it applied to the resources.

2.

More money in the economy must be backed by the resources, metals and its valuations against the other currencies. Then, the country will be more wealthier.  If not, then printing of more money, will create inflation and value of money will decrease if not backed by the resources and important metals such as gold. Hence, the statement in its absolute form is ambiguous in nature.