Final answer:
The U.S. economy is a mixed economy confronting the fundamental challenge of scarcity, where limited resources cannot satisfy all human wants. Scarcity is managed through the proper allocation of resources and utilization of policy tools. Economic decisions often employ cost-benefit analyses to wisely use limited resources.
Step-by-step explanation:
The structure of the current U.S. economy can be described as a mixed economy, which combines elements of traditional, command, and market-oriented economies. In this context, scarcity is a fundamental issue where the demand for resources exceeds the available supply due to limited resources and infinite wants. Two causes of scarcity include limited natural resources and human desires for goods and services that exceed production capabilities.
In the example given with the town of Smithfield, if each ham requires 10 people to produce it and takes a month, with a total of 100 people in the town, the maximum amount of ham the residents can consume in a month is 10 hams, assuming all 100 people are solely focused on ham production and nothing else.
Regarding managing the problem of scarcity, resources travel through our economic system through the mechanisms of production, distribution, and consumption. Scarcity is experienced by everyone because resources are finite and human wants are effectively unlimited. A cost-benefit analysis should be used in situations where decision-makers need to weigh the potential benefits against the costs of an action, especially when resources are limited.
To address the problem of scarcity, the U.S. economy relies on various economic and policy tools, such as market pricing, resource allocation, and economic incentives, to ensure efficient distribution and utilization of resources.