a system where prices act as automatic signals which co-ordinate the action of individual decision making units
Answers
Explanation:
A fundamental concept in economics is that of scarcity. In contrast to its colloquial usage, scarcity in economics connotes not that something is nearly impossible to find, but simply that it is not unlimited. For example, the number of available hours in a day is a scarce resource: there is a finite amount of time available to you to do work, hang out with friends, and relax. Most resources are scarce in most situations.
Since resources tend to be scarce, anyone that uses the resource has to make a decision about how to use it. Suppose, for example, that you are a drink manufacturer. To produce a beverage, you have to use some scarce resources: the plastic for the bottle, the workers’ time, a machine to fill the bottles, etc. If you choose to make one bottle of water, you have chosen to not make a bottle of soda. Your scarce resources force you to make a choice and a trade-off producing one product or another.
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Tradeoffs: Since resources are scarce for a drink manufacturer, it must make a tradeoff between producing bottles of water and bottles of soda.
Like producers, consumers also have to make choices. Often, consumers must choose between current consumption (“I want to buy an ice cream”) and future consumption (“I should rather save my money so I can buy an ice cream tomorrow”). Since consumers’ resources such as time, attention, and money are limited, they must choose how to best allocate them by making tradeoffs.
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