1. America Is Considered a Rich Country because Americans Can Choose from an Abundance of Goods and Services. How Can There Be Scarcity in a Land of Abundance?
There can be scarcity in the United States, a land of abundance, because the United States is a market economy. One of the principles upon which free market economics is based is the concept of scarcity (Mastrianna & Hailstones, 1995).
It is assumed that insufficient resources exist with an economy to satisfy fully all demands of all economic actors. The price system within a free market economy is expected to address problems of scarcity, by restricting the ability to purchase. Thus, prices are an informal form of rationing in a free market economy. Price inflation is the operable function in such a situation.
Prices also function in a free market economy with respect to the theory of demand and consumer behavior. In this theory, consumer demand is defined as a function of the quantities of the goods and services that constitute an individual's consumption bundle. An individual's consumption bundle is determined by her or his willingness to trade one good for another, and this willingness is measured by use of the concept of marginal substitution. Price is one of the determining factors in substitution decisions. Price, in turn, is largely a function of the quantity of a product demanded and the quantity of the product supplied.
Scarcity has two components - consumer desires and consumer abilities to fulfill those desires. In market economies, demand typically exceeds the economy's ability to satisfy all demands (Colander, 2003). The price system is the mechanism that changes demand levels, although it may not change consumer desires.
2. "When a Person Goes to the Grocery Store to Buy Food, There Is No Auctioneer Calling Out Prices for Bread, Milk, and Other Items. Therefore, Supply and Demand Cannot Be Operative". Is This Statement True or False? Exp...