1. What is scarcity?

Scarcity refers to the basic economic problem, the gap between limited resources
and theoretically limitless wants. It is the fundamental economic problem of having
seemingly unlimited human wants and needs in a world of limited resources. This
situation requires people to make decisions about how to allocate resources efficiently, in
order to satisfy basic needs and as many additional wants at possible. It states that
society has insufficient productive resources to fulfill all human wants and needs.

2. Distinguish between the ff

a. Normal vs. inferior

Normal goods can be defined as those goods for which demand increases when
the income of the consumer increases and falls when income of the consumer decreases,
in which the price of the goods remaining constant. Examples of this is the demand for
more expensive cars, branded clothes, expensive houses, diamonds and the like. On the
other hand , Inferior goods is defined as those goods the demand for which decreases
when the income of the consumer increases. An example of an inferior good is buying
bread from the local bakery. When your income rises you buy less value bread and more
high quality, organic bread.

b. Public vs private

Public good is defined as being non rival and non excludable, it is a good or service that
can be consumed simultaneously by everyone and from which no one can be excluded. A private
good is a rival and excludable. A good is non-rival if consumption of one unit by one person does
not decrease available units for consumption by another person. An example of non-rival
consumption is watching a television show. A private good, by contrast, is rival. A good is rival if
consumption of one unit by one person does decrease available units for consumption by another
person. An an example of a private good is my professor's car. BMW has manufactured a
fixed number of 5 series sedans; there are not enough built for everyone to own one. The second
feature of a public good is that it is non-excludable. A good is non-excludable if it is impossible,
or extremely costly, to prevent someone from benefitting from a good who has not paid for it. In
other words, even those who do not explicitly pay for the good can benefit from the good. A
private good, by contrast is excludable. A good is excludable if it is possible to prevent a person
from enjoying the benefits of a good if they have not paid. An example of an excludable good is
cable television. Cable companies can ensure that only those people who have paid the fee
receive programs.

c. Economic vs free

Economic goods are good services that have an opportunity cost and are relatively scarce and
have a price. They are substances or products that by its value attract a price and is on demand
whereby it is profitable to the provider. for instance food in general, clothes and houses in
towns . On the other hand, free goods are products that by nature attract no price but very vital to
every one in the society. These are things that are not limited in supply and do not have a cost.
An example of Free good would be air.

3. Different factors of production

According to traditional economic theory, there are four main factors of production:
land, labor, capital, and entrepreneurship.

land is the physical place where economic activity takes place. It includes all the natural
resources found on it. Land plays an important part in production because land itself and the
resources on it are usually limited. Thus, producers must carefully manage land and its
resources.

Labor represents all of the people that are available to transform resources into goods or
services that can be purchased. Labor force must be well educated and well trained to ensure
that they can produce goods at peak efficiency and quality.

capital generally refers to financial wealth, especially that used to start or maintain a business.
Capital is an important factor of production because it's what allows labor and land to be
purchased.

4. The world’s economic systems fall into one of four main categories: traditional economy, market
economy, command economy and mixed economy.

A traditional economic system is one in which each new generation retains the economic position of
its parents and grandparents. Traditional economies rely on the historic success of social customs
Tradition decides what an individual does for his living,

a command economy, the government controls all economic activity. One example of a command
economy is communism. In a government-directed economy, the market plays little to no role in
production decisions.

Market economies are based on consumers and their buying decisions rather than under
government control. Market trends and product popularity generate what businesses produce. The
producers choose how to make products based on the most economically sound decision and the
buyers decide who gets which products by what they are willing to pay for what they want.

A mixed economy combines qualities of market and command systems into one. In many countries
where neither the government nor the business entities can maintain the economy alone, both
sectors are integral to economic success. Certain resources are allocated through the market and
others through the state