Which of the following best describes the two most important assumptions in all of economics?

• A. Prices are fixed and demand never changes.
• B. People have unlimited wants and resources are scarce.
• C. All goods are free and choices have no opportunity cost.
• D. Markets always reach equilibrium and government intervention is unnecessary.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the fundamental problem economics addresses, which is how to allocate scarce resources to satisfy unlimited wants. This highlights the importance of scarcity and unlimited wants as core assumptions.
2. Step 2: Recognize that because resources are limited (scarce), individuals and societies must make choices about how to use them efficiently.
3. Step 3: Realize that these choices involve trade-offs, meaning that choosing one option typically means giving up another, which introduces the concept of opportunity cost.
4. Step 4: Evaluate the given options by checking which one aligns with these core economic principles: scarcity of resources and unlimited human wants.
5. Step 5: Conclude that the best description of the two most important assumptions in economics is that people have unlimited wants and resources are scarce, as this forms the foundation for economic analysis.