Shocks to the economy force people to make changes because:

• A. economic shocks eliminate the need for opportunity cost considerations
• B. government regulations always increase after every economic shock
• C. resources become scarcer and individuals must reallocate them to maximize utility
• D. all prices in the market remain constant despite the shock

Answer: (C)

Verified step by step guidance

1. Understand the concept of an economic shock: it is an unexpected event that suddenly changes the economic environment, affecting resource availability, prices, or production.
2. Recall the principle of opportunity cost: when resources are scarce, individuals must choose how to allocate them because choosing one option means giving up another.
3. Recognize that economic shocks typically reduce the availability of resources or change their distribution, making resources effectively scarcer.
4. Since resources become scarcer, individuals and firms must reallocate these limited resources to maximize their utility or profits, considering the new constraints.
5. Note that economic shocks do not eliminate opportunity costs, nor do they guarantee constant prices or always lead to increased government regulations; the key effect is the need to reallocate scarce resources.