Which economic concept is best illustrated by the fact that many Americans pay for haircuts?

• A. Price elasticity of demand
• B. Specialization and division of labor
• C. Law of diminishing returns
• D. Scarcity of resources

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of specialization and division of labor. This economic principle explains how individuals or groups focus on a narrow range of tasks to increase efficiency and productivity.
2. Step 2: Consider why many Americans pay for haircuts instead of cutting their own hair. This behavior reflects that people specialize in what they do best and rely on others who specialize in different tasks, such as hairdressers.
3. Step 3: Recognize that paying for haircuts demonstrates how specialization allows individuals to benefit from others' expertise, leading to a more efficient allocation of resources and time.
4. Step 4: Compare this concept with other options like price elasticity of demand, law of diminishing returns, and scarcity of resources, which do not directly explain why people pay for services like haircuts.
5. Step 5: Conclude that the best economic concept illustrated by paying for haircuts is specialization and division of labor, as it highlights the benefits of focusing on specific skills and trading services.