BSM Test Section 2

This is an M/C question. The question text should read "Multiple Choice Question 2". There should be four options: "Option A", "Option B", "Option C" and "Option D". Option D is the correct answer.

Question

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A resource is anything that can be used to produce something else.

Land refers to all resources that come from nature, such as minerals, timber, and petroleum.

Labor is the effort of workers.

Physical capital refers to manufactured goods used to make other goods and services.

Human capital refers to the educational achievements and skills of the labor force, which enhance its productivity.

Why do individuals have to make choices? The ultimate reason is that resources are scarce. A resource is anything that can be used to produce something else. The economy’s resources, sometimes called factors of production, can be classified into four categories: land (including timber, water, minerals, and all other resources that come from nature), labor (the effort of workers), physical capital (machinery, buildings, tools, and all other manufactured goods used to make other goods and services), and human capital (the educational achievements and skills of the labor force, which enhance its productivity).

A scarce resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it.

A resource is scarce when there is not enough of it available to satisfy the various ways a society wants to use it. For example, there are limited supplies of oil and coal, which currently provide most of the energy used to produce and deliver everything we buy. And in a growing world economy with a rapidly increasing human population, even clean air and water have become scarce resources.

Just as individuals must make choices, the scarcity of resources means that society as a whole must make choices. One way for a society to make choices is simply to allow them to emerge as the result of many individual choices. For example, there are only so many hours in a week, and Americans must decide how to spend their time. How many hours will they spend going to supermarkets to get lower prices rather than saving time by shopping at convenience stores? The answer is the sum of individual decisions: each of the millions of individuals in the economy makes his or her own choice about where to shop, and society’s choice is simply the sum of those individual decisions.

For various reasons, there are some decisions that a society decides are best not left to individual choice. For example, two of the authors live in an area that until recently was mainly farmland but is now being rapidly built up. Most local residents feel that the community would be a more pleasant place to live if some of the land were left undeveloped. But no individual has an incentive to keep his or her land as open space, rather than sell it to a developer. So a trend has emerged in many communities across the United States of local governments purchasing undeveloped land and preserving it as open space. Decisions about how to use scarce resources are often best left to individuals but sometimes should be made at a higher, community-wide, level.