Theory question 103
Basic Concepts(a) Why is scarcity a fundamental problem in Economics?
(b) Give a reason why Economics is a (i) science; (ii) social science
(c) How do governments solve the problem of scarcity?
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(a) Human wants are unlimited while the resources to satisfy them are limited; so every individual, firm and government must choose, and every choice has an opportunity cost. All economic problems (what, how, for whom to produce) arise from scarcity.
(b)(i) Science: it uses scientific methods – observation, collecting data, forming and testing hypotheses, and stating laws (e.g. law of demand).
(ii) Social science: it studies human behaviour in society, which cannot be controlled in a laboratory, so its laws are less exact.
(c) Any of: setting priorities through a scale of preference and development plans; efficient use and allocation of resources; price control and rationing; encouraging production (subsidies, investment); importing goods in short supply; population control; developing new resources and technology.
Scarcity means wants exceed resources, so choice is unavoidable.