Test yourself 1.

1:
1. Think of some of your most important needs and wants, and then explain whether
these are satisfied by goods or services.
a. Needs: water (good), food (good or service), clothes (good)
b. Wants: car (good), movie (service), holiday (service)

2. Outline why economics is a study of choice. Describe its relationship to scarcity.

Outline how scarcity is related to the need to avoid waste in the use of resources.
a. Economics is a study of choice because wants and needs are
unlimited/infinite, but the resources available are finite/limited. Due to this
we, as a community need to make choices to efficiently distribute these
limited and scarce resources in order to promote and support everyone’s or
the maximum people’s lifestyle.
b. Scarcity is the term that is synonymous to being limited in this situation and is
what forces choices to be needed to be made.
c. Scarcity goes hand in hand with avoiding wastage of resources as it talks
about the finiteness of these sources and hence giving them value as they are
limited. This implies that they need to be used in a thought through manner
as once they are finished, more cannot be produced or found.

3. Explain why diamonds are far more expensive than water, even though diamonds
are a luxury while water is a necessity without which we cannot live.
a. Diamonds are far more expensive than water due to the concept of scarcity.
Since diamonds are extremely scarce, whereas water is available in
abundance (relatively), diamonds cost a lot more due to the limited
availability of them. That being said if the quantity of water reduced to that
of the diamonds currently, water would end up being valued a lot more
because then the point of it being a necessity becomes relevant.

Test yourself 1.2:

1. Explain the relationship between scarcity and sustainability.
a. Scarcity talks about utilising the available resources carefully as they are
limited. Similarly, sustainability also urges us to utilise the resources carefully
as there are future generations which relies on our actions today for their
survival tomorrow. Both sustainability and scarcity talk about avoiding the
wastage of the precious and very limited resources through different
reasonings.