"scarcity is the root of all economic problems" Explain the statement.
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Scarcity is a economic problem faced by every economy system in the world. So, what exactly is scarcity? Scarcity is a problem of fulfilling all of our human needs and wants with limited resources available. For example, durian. A fruit that only grows certain times of the year, when consumers demands for durian during a period of time where durians will not grow, scarcity will occur because of the limited durian available to fulfill the consumers wants. There are 4 economy systems in this world which is the market economy, planned economy, mixed economy and the Islamic economy. All of this economy system has their own specific way in solving this economic problem. ( The non-hub story 2010)
In a market economy system which is also called capitalism. Example of a market economy system is the United State of America. The fact that resources are privately owned and the fact that the government will not involve in any decision making, therefore the producer will have to find a solution to solve the scarcity problem faced. The consumers plays a major part to solve this problem, because the consumers will have to decide the type and quantities of goods or services to be produced. For example, the demand for cars and motorcycles has increase. Because of the limited resources to fulfill both needs, the producer will have to come to a decision whether to produce more cars or motorcycle. The producer will then decide based on the profit gained, if the profit gained from selling cars is higher than motorcycles, the producer will produce more cars compared to motorcycle and vice versa. The producers will also follow the price mechanism because this will determine the allocation of scarce resources. ( The non-hub story 2010 )
Not only that, producer can also increase the price of an item to motivate consumer to increase the use of substitutes. Producers can also find new modern technology that utilizes resources better. This technological change will then cause the resources to be used more efficiently or less intensely.
As for command economy also known as socialism or planned economy, this economy is associated with socialist or communist economic system, the government owns all the resources available, so they themselves will have to organize and use the resources intelligently and to the best advantage they could. There's several ways used by the government to solve the scarcity problem faced. One of them is fixing the amount of good to be produced and the price in where the good is sold. This way, it will set quotas for each individual production unit and the resources producing the goods will be fixed. The income or also called as wealth will then be distributed by state. That is why in command economy, the market price plays a little or no part in informing resource allocation decisions and queuing rations scarce.
In a market economy system which is also called capitalism. Example of a market economy system is the United State of America. The fact that resources are privately owned and the fact that the government will not involve in any decision making, therefore the producer will have to find a solution to solve the scarcity problem faced. The consumers plays a major part to solve this problem, because the consumers will have to decide the type and quantities of goods or services to be produced. For example, the demand for cars and motorcycles has increase. Because of the limited resources to fulfill both needs, the producer will have to come to a decision whether to produce more cars or motorcycle. The producer will then decide based on the profit gained, if the profit gained from selling cars is higher than motorcycles, the producer will produce more cars compared to motorcycle and vice versa. The producers will also follow the price mechanism because this will determine the allocation of scarce resources. ( The non-hub story 2010 )
Not only that, producer can also increase the price of an item to motivate consumer to increase the use of substitutes. Producers can also find new modern technology that utilizes resources better. This technological change will then cause the resources to be used more efficiently or less intensely.
As for command economy also known as socialism or planned economy, this economy is associated with socialist or communist economic system, the government owns all the resources available, so they themselves will have to organize and use the resources intelligently and to the best advantage they could. There's several ways used by the government to solve the scarcity problem faced. One of them is fixing the amount of good to be produced and the price in where the good is sold. This way, it will set quotas for each individual production unit and the resources producing the goods will be fixed. The income or also called as wealth will then be distributed by state. That is why in command economy, the market price plays a little or no part in informing resource allocation decisions and queuing rations scarce.
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