(a) Why is scarcity a fundamental problem in Economics? [6 marks] (b) Give a reason on why Economics is a (i) science; (ii) social science [3 marks each] (c...

(a) Why scarcity is a fundamental problem in Economics. Scarcity means that human wants are unlimited while the resources (land, labour, capital, and enterprise) available to satisfy them are limited. Because resources are limited relative to wants, society cannot produce everything everyone desires, so it is forced to make choices about how to use those scarce resources. This act of choosing gives rise to opportunity cost (the next best alternative given up) and to the three basic questions of what, how, and for whom to produce. Since every other economic decision flows from this need to allocate limited resources among competing unlimited wants, scarcity is the fundamental problem that Economics exists to study.

(b) Economics as a science and a social science.

• (i) A science. Economics is a science because it uses a systematic method of study: it observes economic facts, forms hypotheses, tests them, and derives laws and theories (for example the law of demand) that can be used to predict behaviour.
• (ii) A social science. It is a social science because it studies the behaviour of human beings in society, specifically how people and groups make choices in producing, distributing, and consuming wealth, rather than studying non-living matter.

(c) How governments solve the problem of scarcity. Government cannot abolish scarcity, but it can manage it by allocating resources more efficiently. Ways include:

1. Setting priorities through planning and budgeting. Government decides which needs are most urgent and directs resources to them.
2. Increasing the supply of resources. Through education and training it improves labour, and through investment it increases capital and develops natural resources.
3. Encouraging efficient use of resources. By improving technology and reducing waste, more output is obtained from the same resources.
4. Controlling and rationing. Through price controls, taxation, subsidies, and rationing, government influences how scarce goods are shared.
5. Encouraging production and imports. Incentives to producers and importation of scarce goods increase the quantity available to satisfy wants.