Economics 9708/11 — May/June 2017

Background Concept

Scarcity is the fundamental economic problem: resources are finite, while human wants are infinite. This means that not all wants can be satisfied. As a result, every economic agent—individuals, firms, and governments—must make choices about how to use limited resources. The concept of opportunity cost arises from these choices: the value of the next best alternative foregone.

Understanding the Question

The question asks what must follow when scarcity exists. It is testing the direct logical implication of the definition of scarcity. The word "must" is key: we need to identify a statement that is necessarily true, not just possibly true. Options B, C, and D describe outcomes that could occur but are not guaranteed by scarcity alone.

Approach

Recall the definition of scarcity and its immediate consequence: because resources are limited, choices must be made. Evaluate each option against this: is it an inevitable result of scarcity? If not, it is a distractor.

Step-by-Step Reasoning

1. Scarcity means limited resources relative to unlimited wants.
2. Therefore, not all wants can be satisfied; some wants must be left unsatisfied.
3. To decide which wants to satisfy, economic agents must make choices about how to allocate scarce resources.
4. Option A: "Consumers have to make choices." This is directly true: consumers must choose which goods and services to buy with their limited income.
5. Option B: "Governments are unable to supply public goods." This is false. Scarcity does not make governments unable to supply public goods; they can still do so by using tax revenue. The issue is that governments themselves face scarcity and must choose priorities, but they can still supply public goods.
6. Option C: "Producers must be misallocating resources." Scarcity does not automatically imply misallocation; producers may allocate resources efficiently or inefficiently, but scarcity alone does not force misallocation.
7. Option D: "Workers must be earning low wages." Low wages are not a necessary consequence of scarcity. Wages depend on many factors such as productivity, labour supply, and market conditions.

Thus, only A is a necessary consequence.

Key Takeaways

• Scarcity implies choice at all levels: individuals, firms, and governments.
• The term "must" in multiple-choice questions requires identifying a statement that is always true given the premise.
• Distinguish between necessary outcomes and possible outcomes that are not guaranteed.

Common Mistakes

• Confusing the consequences of scarcity with other economic phenomena. For example, thinking that scarcity forces governments to avoid public goods, which is not true.
• Overthinking: Some students might think scarcity always leads to misallocation, but that is not inherent; it is an inefficiency that can occur but is not necessary.
• Ignoring the word "must" and selecting an option that is often true but not always.

Things to Be Careful About

• Read the question precisely: "What must follow" means the statement is always true given scarcity.
• Do not confuse scarcity with shortage: scarcity is universal, shortage is a temporary market condition.
• Remember that choices are a direct consequence of scarcity; this is a fundamental starting point in economics.