1. Why does a central problem of an economy arise?

Correct Answer: IV. Multiplicity of wants and scarcity of resources

Meaning in simple words

People have many wants. They want food, clothes, houses, mobile phones, and cars.

But resources are limited. People have limited money, time, land, and raw materials.

So, people cannot satisfy all their wants at the same time.

They must decide which wants to satisfy first. This creates the central problem of an economy.

Example

Suppose you have ₹100.

You want to buy a book, snacks, and a toy. But you do not have enough money to buy everything.

You must choose what is more important.

This happens because human wants are many, but resources are limited.

Exam Answer

The central problem of an economy arises because human wants are unlimited, while resources are scarce. Therefore, people cannot satisfy all their wants and must make choices.

2. Why is choice fundamental to economic behaviour?

Correct Answer: II. Resources are scarce in relation to people’s wants

Meaning in simple words

Choice means selecting one thing from different options.

People have many wants, but their money and resources are limited.

So, they must choose what they need most.

If resources were unlimited, people could satisfy all their wants without giving anything up. Choice would not be necessary.

Example

Suppose you have ₹50.

You want a notebook costing ₹40 and a sandwich costing ₹30.

You cannot buy both because their total cost is ₹70.

You must decide which one to buy.

This is an example of economic choice.

Choice is necessary because resources are limited compared with people’s wants.

Arena AI Image Prompt

Quick Revision

Question	Correct answer
Why does the central problem of an economy arise?	Because wants are many and resources are scarce.
Why is choice important in economics?	Because resources are scarce compared with people’s wants.

Remember: We have many wants but limited resources. Therefore, we must make choices.