1Managerial EconomicsFinal ExamForEach Question is worth 3 points. Do your best. Attempt an answer even if you are not sure to capture at least one point for the question. Feel free to use additional paper if you need it and attach to this exam.Chapter 11_What is a scarce resource?Economically scarcity is when the means to fulfill ends are limited and costly. the scarce resource is an economic theory in which a limited supply of a good, coupled with a high demand for that goodwhich will result in a disturbance between the supply and demand equilibrium. The scarcity idea that the more difficult itis to acquire an item the more value that item has. Once more, Scarcity refers to the basic economic problems, the gap between limited resources and the theoretically limitless wants. This situation will require the people in charge to make decisions about how to manage the availability ofresources efficiently in order to satisfy basic needs or human needs and as many additional wants from this resource as possible. Even free natural resources can become scarce if costs arise in obtaining or consuming them, or if consumer demand for previously unwanted resources increases due to changing preferences or newly discovered uses. If we took a natural resource as water for example, we will find out that it’s a scarce resource and that’s because the following reasons: 1-Increased usage due to rising population2-Consumption pattern changing3-Expansion of irrigated agriculture. Those without access to clean water are experiencing a scarcity of water. Other examples: Overhunting/fishing of an animal population could make it scarce. The gasoline shortage in the 1970’s. When hurricanes hit Florida, oil prices increase because of the possibility of scarcity of gas for vehicles. Flooding might cause scarcity of food. Recent proposed gun legislation in the United States has caused individuals to collect ammunition, leaving a scarcity of ammunition. Conclusion: any resource is determined to be scarce when it in not freely available- that is when the price exceeds zero. 2_In the presence of scarce resources, how do managers make decisions?I believe that Managerial Economics should be defined as the science of dealing with effective use of scarce resources in general. It guides the managers in taking decisions relating to the firm’s customers, competitors, suppliers as well as
2relating to the internal functioning of a firm. The manager uses statistical and analytical tools to assess economic theories in solving practical business problems. In the presence of scarce resources, decisions are important because scarcity implies that by making one choice, you giveup another. Example, a computer firm that spends more resources on advertising has fewer resources to invest in research and development. Economic decisions thus involve the allocation of scarce resources, and a manger’s task is to allocate resources so as to best meet the manager’s goals.