Quiz 3: The Fundamental Economic Problem: Scarcity and Choice


(a) The poorest person on the earth faces the problem of resource limitation. Poorest person might not be able to have food to survive. If he/she does the other work rather than gathering the food, then he /she might not be able to survive. For example, if a poorest man takes time to create weapons with the help of wood for hurting others, then he/she might be deprived from having food. (b) The resource limitation affects the richest person in the United States. A rich person always tries to maximize its wealth by acquiring new firms. If a richest person in the United States acquires a new firm, then he/she might find difficulties in buying other companies. For example, if a large aviation firm is purchased by a richest man, then he/she might face financial problems while purchasing steel company. (c) In Kansas, farmers have relatively less resources available. If a farmer in Kansas uses his all resources to produce soybean, then he might not be able to produce wheat. Thus, a farmer in Kansas faces a problem of resource scarcity. (d) The government of Indonesia also faces the problem of resource limitation despite having large populations and productive resources. If the government of Indonesia decides to increase its agricultural production, then it might not able to increase its industrial production. It has to sacrifice the industrial production for agricultural production.

Buying house is a good deal for the tenant considering that the buyer can save annual rent of $24,000 and he/she has to forgo $8,000 interest payment on the deposited amount. Tenant is earning $8,000 interest annually on the amount which he/she has deposited in the bank account. If the deposited amount is used for buying the house, then the annual rent of $24,000 can be saved which is more than the interest earning. Thus, buying the house can be regarded as a good deal considering the higher benefits to the tenants. The opportunity cost of renting house is relatively greater, so the tenant should buy house.

One would reduce the additional expenditure on programs if the budget is reduced by 10 percent. Reduction in the budget leads to decrease the expenditure. A president would advise to reduce avoidable expenditure. If the budget is decreased by 25 percent, then one would reduce additional non-teaching staff of the college. If the budget is cut by 50 percent, then a president would advise to reduce the teaching- staff and other expenditure on promotional activities. A college has to spend relatively more on paying the wages of its professors. If the numbers of professor are reduced, then one would be able to balance the budget of a college.

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