Question

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?

A. Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.
B. Governments may face the problem of shortages but not scarcity in making economic decisions.
C. Firms and the government face scarcity, individuals only face shortages.
D. Only individuals face scarcity; firms and the government do not.

Answer 1

Economic decisions involve tradeoffs due to scarcity, where people's desires exceed what is possible. Individuals, firms, and society must make choices about what quantities of goods and services to consume.

Step-by-step explanation:

Economists see the real world as one of scarcity: that is, a world in which people's desires exceed what is possible. As a result, economic behavior involves tradeoffs in which individuals, firms, and society must forgo something that they desire to obtain things that they desire more. Individuals face the tradeoff of what quantities of goods and services to consume. The budget constraint, which is the frontier of the opportunity set, illustrates the range of available choices. The relative price of the choices determines the slope of the budget constraint. Choices beyond the budget constraint are not affordable.