The Basic Economic Problem Is Scarcity - 1472 Words

Topic2: Question No.1 The basic economic problem is scarcity. It occurs when people want infinite but resources are limited. Scarcity is due to limited resources because people want more and more. Resources are shortage and have alternative uses. There are three causes of construction such as land, labour and capital. Scarcity is the excess of human wants over what can basically be produced . The central economic problem effects on command economy. Command economy is a economy in which Government controls the economic deeds and give the judgment what to produce, how to produce and manage the distribution levels and setting prices. Such economies happen in China, North Korea, Cuba and the former Soviet Union. Conventionally, command†¦show more content†¦The production possibility frontier describes that there are limited resources to production, so it is necessary to plan what combination of goods and services can be produced to get effectivene. The production possibility frontier is helpful in c ommand economy, in taking important decisions on assigning the resources of economy to different sectors of development, and on several types of goods. It differentiates between what is possible and what is needed. Question No.2 The law of demand states that buyer will buy less of a good at higher prices and more of a good at lower prices. The law of supply states that producers will sell fewer goods at lower prices and more goods at higher prices. In state of equilibrium the amount of goods the consumer is willing to buy is equal to the quantity that producers are planning to sell. (a) Severe water shortage in the state of Arizona is because there is less supply of the Scottish water bottle. A decrease in supply is represented on a graph as a leftward shift (S2), then there would be shortage of a-b at the old price Equilibrium1, this causes price to rise to the new Equilibrium2. Quantity would fall from Equilibrium1 to Equilibrium2. There would be a movement through the demand curve from point a to c through the new supply curve (S2) from point b to c. This is explained in the following figure: (b) New technology which is subsidized by the UK