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Scarcity and Choice in Modern Society

The bus driver works for wages, but
needs his food, so the wages are
exchanged in order to satisfy his
needs. As such, exchange must take
place if everyone’s wants are to be
The process of exchange involves making
choices. The bus driver had to chose
between keeping his wages, going to the
movies or buying food.
Whenever we go shopping, we are involved in
the basic economic activity of making choices
because we have scarce resources. We may
have to choose between buying a book bag we
need and a sneakers we want. We have
unlimited wants but we have limited resources
(money) available. We also have to form a
Scale of Preference.
We have to put what we want into some
order of priority. To get one valuable
item means that another item of value
has to be given up. Opportunity Cost,
becomes significant, since we will have
to forego one item for another.
Scarcity and choice are not only problems that
have to be faced by individuals. Firms and
Governments have to make choices also. When
a country has to decide to build a school instead
of a hospital, because the school is priority then
there is a cost attached.
If a firm has reaped huge profits, they
will need to decide, should we expand
our Business by trying a new product or
should we reward our staff with a higher
This is what Economic is about. Economic
is defined as the study of scarcity and
choice. In other words, how will society
share its limited resources among all the
various entities in the society that are
competing for these scarce resources?
This problem is the Economic Problem.
It is against this problem that the various
economic systems are designed to deal with this
problem. An Economic System, refers to the way
in which a country plans to utilize its resources to
the best benefit of their society. Three main
approaches, adopted by governments are:
 Free market economy
 Controlled economy
 Mixed economy
Societies are organized to answer three basic
economic questions. These are as followed:
1. What goods and services to produce?
2. How will the goods and services be produced?
3. For whom are the goods services to be
Characteristics of a Free
Market Economy
There is little or no government interference.
 The customer drives the economy. They
influence the producers who will not make a
profit by producing goods that are not in
 The entrepreneur sets up his own business and
dictates production and profit targets.
 The consumer buys freely to satisfy the needs
and wants of his family.
This system may also be known as Laissez-faire,
capitalist, or unplanned. Example of such
system are UK, Hong Kong and USA.
Advantages of Free Market
Government’s involvement is very limited.
 Competition among firms forces prices down.
 Producers are free to use the factors of
production in anyway they consider to be most
suitable to them.
 Consumers are free to spend their money in any
way they choose.
 A large variety of goods and services are
produced to satisfy the needs of the consumer.
Disadvantage of Free Market
The profit motive drives this economy and thus
encourages unequal distribution of wealth. The
rich get richer and the poor get poorer.
 Monopolies develop and these can exploit
consumers since they can decide on higher
 Social and merit goods, example, health,
education and security may not be provided.
The state owns and controls the means
of production and the profits gained from
these industries are used for the benefit
of the people in the country.
Advantages of Planned Economy
 Since the government decides what is to be
produced they will use resources wisely for the
citizens benefit.
 Profits resulting from industry and agriculture
may be used to foster further production,
provide public goods like hospitals and schools
and better welfare services.
 Incomes are more evenly distributed.
 Workers may work harder, since they may feel
that they are working for themselves and their
Disadvantages of Planned Economy
There is the difficulty of estimating the quantities of
products that are needed for the country as a
whole, because not all the information may be
available to make right decisions.
A great deal of personnel is required for central
planning and this may result in wastage of
There may be a conflict of interest because what
the country needs may not be what the country
This system may also be called Controlled or
Command Example China, Cuba.
The Mixed Economy has features of both
free and planned economic systems.
Most Caribbean countries practice this
system. Therefore the nations’ industries
are in the hands of the private sector or
the state. Most governments controls
water, electricity and transport.
The government is allowed to intervene in areas
of the economy to collect taxes and pass laws to
protect citizens from unfair trading practices.
 Social cost like pollution are kept at a minimum.
 Both the private and public sector may unite in
producing goods. For example, the government
may allow private firms to do road repairs.
 Government protects the consumers and
producers by selling minimum prices.
Conflict may arise between government
and private firms and this may result in
long delays in the production of goods
and services.
 Government may regulate the economy
so tightly that this dampens the free
enterprise sprit.
Past paper questions
2005 question 5
a. State THREE functions of a business. [3]
b. Identify THREE differences between a market
economy and a planned economy. [6]
c. Name a country which has:
i. A planned economy
ii. A mixed economy
d. List THREE methods of internal communication used in
an organization. [3]
e. i. Evaluate the effectiveness of ONE method listed in
d. above. [2]
ii. Outline TWO reasons why an effective
communication flow is important to an organization. [4]
2004 question 1
a.State THREE differences between a
centrally planned economic system and a
market driven economic system. [3]
b.Identify THREE differences between the
private sector and the public sector. [3]
c.State TWO legal requirements which a
public limited company must satisfy
before operating as a business. [4]
2002 question 1
a.List TWO types of economic
systems. [2]
b.Explain the differences between
the types of economic systems
listed in a. above. [4]
c.Suggest TWO ways by which the
government of your country can
control business activity. [4]
1999 question 1
a.List TWO types of economic systems.
b.Explain the differences between the
types of economic systems listed in a.
above. [4]
c.Suggest TWO ways in which your
government may assist the two
economic systems in a. above to enable
them to be more productive. [4]