Which statement about the economic problem is true?

• A. It arises because the economy has finite resources
• B. It is solved when wants exceed resources
• C. It implies unlimited wants can always be satisfied
• D. It is unrelated to production possibilities

Answer: (A)

The main idea being tested is scarcity: because resources are finite, we must make choices about what to produce andconsume, leading to trade-offs and opportunity costs. With limited resources like land, labour, and capital, the economy cannot satisfy every want, so decisions have to be made about how best to use those resources.

This is why the statement that the economic problem arises because resources are finite is the true one. When resources are limited, producing more of one thing means giving up some of another, which is the essence of the economic problem. Production possibilities illustrate this idea by showing the different combinations of goods that can be produced with the available resources, and why we can’t reach unlimited production.

The other ideas don’t fit because they ignore the limits of resources. If wants exceeded resources, that would just be another way of describing scarcity, not a solution—scarcity persists because there aren’t enough resources to satisfy all wants. Saying unlimited wants can always be satisfied contradicts the reality of finite resources. And claiming the economic problem is unrelated to production possibilities ignores the framework we use to understand trade-offs and efficient use of resources.