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Homework answers / question archive / Goods and services are scarce because: a

Goods and services are scarce because: a

Economics

Goods and services are scarce because:

a. people are greedy

b. they are produced using scarce resources

c. firms keep production low in order to earn higher profits

d. they are produced by firms that seeks profits

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The answer is b. they are produced using scarce resources.

Goods and services are produced by firms that are constrained by their resources of raw materials, labor, and capital. None of these resources are available in an endless supply. One of the more critical resources is capital this is the money that a firm needs to build their buildings, hire workers, buy production equipment, and pay for raw materials, It is because these resources are in scarce supply, that goods and services are scarce.

The answer is not a. because people are greedy. That goods and services are scarce. Just the normal demand is enough to make goods scarce. People are looking to maximize their utility from buying goods and services, that is normal behavior. Greedy behavior belongs to a category of wanting more than one can use. There is greed in the world but normal utility maximizing behavior is not an explanation of the scarcity of goods and services.

The answer is not c. Firms do want to maximize profits, but that is not always accomplished by keeping production low. Why would a firm make more than one unit if that were true? A firm operates where their marginal revenue equals their marginal costs. That is where profits are maximized. In some markets, that may be a very large volume, and in other markets it could be small.

The answer is not d. the fact that firms seeks profits is important, but they don't achieve that by restricting resources. They have restrictions on the resources they can afford and make a profit that attracts investors. A firm cannot exist without profit and they don't maximize profit by restricting outputs as was discussed in part the answer above.