Why do people engage in buying and selling products or services in an economy?

• A. To eliminate the need for specialization and division of labor
• B. To increase the total amount of resources available in the economy
• C. To allocate scarce resources efficiently and satisfy their wants and needs
• D. To ensure that all goods and services are provided for free

Answer: (C)

Verified step by step guidance

1. Understand the concept of scarcity: Resources in an economy are limited, but human wants and needs are virtually unlimited. This creates the problem of scarcity, which means choices must be made about how to allocate resources.
2. Recognize the role of specialization and division of labor: People and firms specialize in producing certain goods or services where they have an advantage, increasing overall productivity and efficiency.
3. Identify why buying and selling occur: Because individuals and firms specialize, they need to exchange goods and services to obtain what they do not produce themselves. This exchange happens through buying and selling in markets.
4. Explain the function of markets in resource allocation: Markets facilitate the efficient allocation of scarce resources by allowing prices to adjust based on supply and demand, guiding resources to their most valued uses.
5. Conclude that buying and selling help satisfy wants and needs efficiently: Through trade, individuals and firms can obtain a variety of goods and services, maximizing overall satisfaction given the scarcity of resources.