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Effects of Scarcity

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Scarcity implies that people cannot have everything that they want. Their resources are limited, so they must choose which of the many possible goods and services they will have. This applies to society as well as to any individual. Please discuss the topic of scarcity using the following terms and concepts:

Supply and demand
Opportunity costs
Trade-offs
Factors of production
Production possibilities frontier

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Scarcity: Is defined as an economical problem of having what appear to be unlimited wants and needs by the consumer, within a world that is restricted because of limited resources. This also indicates that not all consumer needs and demands can be met at the same time, thus needing a trade-off between the various demands (Free dictionary, 2013).

Supply and demand: This increases a product or services value or price when it is in high demand but limited in availability. This is different than when a new item or product is offered, the values and prices for this reflect more of the production cost or initial capital that is invested (Economics Academy, 2013. Example, The Umpa-Lumpa's that run my special production company come at a higher cost because of their rare and special abilities as compare to the standard production person offers.

Opportunity costs: This measure the expenditures for any decision that is made in terms of selecting the next best alternative that is used to replace one resource with another. This is to say, even though there are alternate resources for use, one has to choose the best way to utilize these resources. When choosing what is going to be the best alternate in resources, is defined as the opportunity cost of making the decision and reflects the opportunity lost (The economical lowdown, 2013). Example, Umpa-Lumpa's like to be paid with housing and food, and try ...

Solution Summary

Scarcity implies that people cannot have everything that they want. Their resources are limited, so they must choose which of the many possible goods and services they will have. This applies to society as well as to any individual. The solution discusses the topic of scarcity using the following terms and concepts.

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Scarcity and the Supply Curve

1. Describe how the concept of scarcity affects the aggregate supply curve.

2. Suppose the government mandates that all companies over 50 employees must provide an increased level of health care benefits. Could you please explain what effect this will have on the aggregate supply curve.

3. Assume the economy is at equilibrium and output is at 20,000. A rightward shift in the supply curve shows that the economy can produce 26,000 at the same price as before. Where will output be at the new equilibrium? Above the new 26,000 possible output, equal to the new 26,000 possible output, or below the new 26,000 possible output? Why?

4. Suppose the government increases the retirement age to 75. That is, workers will not be eligible for full retirement benefits until they are 75. What effect will this have on aggregate supply?

Thank you!

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