DECA+ Business Management and Administration Practice Exam

Which principle addresses the behavior of individuals or firms when they have limited resources?

1. Market Equilibrium

2. Scarcity

3. Opportunity Cost

4. Input-Output Analysis

The correct answer is: Scarcity

The principle that addresses the behavior of individuals or firms when they have limited resources is scarcity. Scarcity refers to the fundamental economic problem that arises because resources are finite, while human wants and needs are virtually limitless. This condition compels individuals and businesses to make choices about how to allocate their limited resources effectively. Understanding scarcity is crucial in economics, as it necessitates prioritizing certain goods and services over others, leading to trade-offs. It influences decision-making and shapes the supply and demand dynamics in a market. For example, if a company has a fixed budget for production, it must decide how to allocate that budget across different products or projects, reflecting the essence of scarcity. While opportunity cost relates to the next best alternative forgone when a choice is made, it is a concept that stems from scarcity. Market equilibrium describes the point where supply equals demand, and input-output analysis involves examining production processes and efficiency, but neither directly addresses the behavior resulting from limited resources as scarcity does.