Final answer:
The standard of living is most closely related to our productivity, as it determines the amount of goods and services we can produce and thus our income. Scarcity and resource allocation are key in deciding how to use our limited resources efficiently.
Step-by-step explanation:
Our standard of living is most closely related to our productivity because our income is equal to what we produce. Productivity is a measure of the efficiency of production and is calculated by dividing total output by the total input of resources, such as labor and capital. The higher our productivity, the more we can produce within a given period of time and with a limited amount of resources, thus increasing our income and our standard of living. This concept is tied to the idea of scarcity, which acknowledges that our resources are limited while our wants are unlimited. Societies continuously face the challenge of how to allocate these scarce resources to maximize goods and services through the division and specialization of labor, as highlighted by Adam Smith in The Wealth of Nations.
Choices must be made regarding the allocation of resources, considering factors such as nonrenewable natural resources, capital, and physical strength, among others. While scarcity determines the need to prioritize certain productions over others, it is the productivity of a society that ultimately establishes the variety and abundance of goods and services it can enjoy, shaping the standard of living for its members