What does the concept of scarcity explain?

• A. Why resources are unlimited and can satisfy all human wants
• B. Why individuals and societies must make choices about how to allocate limited resources
• C. Why prices never change in a market economy
• D. Why opportunity cost arises when making economic decisions

Answer: (B)

Verified step by step guidance

1. Understand that scarcity is a fundamental concept in economics that arises because resources are limited while human wants are unlimited.
2. Recognize that scarcity forces individuals and societies to make choices about how to allocate these limited resources efficiently.
3. Realize that because resources cannot satisfy all human wants simultaneously, trade-offs must be made, leading to the concept of opportunity cost.
4. Note that scarcity explains why economic decisions involve prioritizing some uses of resources over others, rather than why prices never change or why resources are unlimited.
5. Summarize that scarcity is the reason behind the necessity of making choices and facing opportunity costs in economic decision-making.