If an economy is unable to produce the goods and services that people want, which of the following is most likely to occur?

• A. The standard of living will automatically improve.
• B. Unemployment will immediately drop to zero.
• C. Scarcity will increase, leading to higher prices and unmet needs.
• D. Resources will become unlimited.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of scarcity in macroeconomics. Scarcity refers to the fundamental economic problem of having limited resources to meet unlimited wants and needs.
2. Step 2: Recognize that if an economy cannot produce the goods and services people want, the supply of these goods and services is insufficient relative to demand.
3. Step 3: Analyze the consequences of insufficient supply: when demand exceeds supply, scarcity increases, which typically leads to higher prices as consumers compete for limited goods.
4. Step 4: Consider the impact on unmet needs: because the economy cannot produce enough, some consumer needs and wants remain unsatisfied, affecting overall welfare.
5. Step 5: Conclude that this situation does not lead to automatic improvements in living standards, zero unemployment, or unlimited resources, but rather to increased scarcity, higher prices, and unmet needs.