Question

7. Discuss some valid and some invalid objections to letting prices eliminate shortages of supplies of scarce resources

Answer 1

Scarcity: Scarcity in economics refers to the shortage or lack of resources to fulfil humans' wants and needs. Water, steel and diamonds are subject to scarcity. The Problem of scarce resources and unlimited wants makes a person to choose among the available alternatives. Out of these various alternatives a person has to choose any one alternative and leave the other. An increase in the price of scarce resources results in an increase in the quantity supplied. The shortages of scarce resources can be eliminated with an increase in the quantity supplied of the resources. Valid Objections for letting the price rise: An increase in the rise in the prices of scarce resources results in a negative effect of the use of those resources during production. This results in an effect in the efficient production of the resources. Invalid Objections for letting the price rise: An increase in the rise in the prices of scarce resources results in a decrease in the quantity demanded for those resources. This creates a shortage.