Which of the following best describes the difference between a shortage and scarcity?

• A. A shortage is a permanent condition, while scarcity is temporary.
• B. Scarcity only happens in developing countries, while shortages occur in developed countries.
• C. Scarcity can be eliminated by increasing production, while shortages cannot.
• D. Scarcity refers to the limited nature of resources, while a shortage occurs when the quantity demanded exceeds the quantity supplied at a given price.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of scarcity. Scarcity refers to the fundamental economic problem that resources are limited while human wants are unlimited. This means that scarcity is a permanent condition affecting all economies because resources like time, money, labor, and raw materials are finite.
2. Step 2: Understand the concept of shortage. A shortage occurs when, at a specific price, the quantity demanded of a good or service exceeds the quantity supplied. This is usually a temporary situation caused by market conditions such as price controls, sudden increases in demand, or supply disruptions.
3. Step 3: Compare scarcity and shortage. Scarcity is about the limited availability of resources in general, which is always present, while a shortage is a market imbalance that happens at a particular price point and can be resolved over time.
4. Step 4: Analyze the given answer choices by matching them with the definitions. Identify that scarcity is not country-specific or eliminable by production increases, and shortages are not permanent conditions.
5. Step 5: Conclude that the best description is: 'Scarcity refers to the limited nature of resources, while a shortage occurs when the quantity demanded exceeds the quantity supplied at a given price.' This captures the fundamental difference between the two concepts.