Question

explain how the budget situation illustrates the concept of scarcity and tradeoffs and discuss how a state government might use marginal analysis to balance its budget.

Answer 1

The concept of scarcity states that there will be a deficit regarding the supply of a certain good in comparison the demand for it. Therefore, a state budget must revise its current state knowing that there will always be some players who will lose benefits in the attempt of shifting the assignment of resources.

The marginal analysis is an examination of the additional benefits a certain activity gets compared to a number of additional resources assigned to it. It helps the state government have a better view of where to allocate resources. As there are sectors that will probably gain more benefits than others with the same assigning of resources. The key to this analysis is to now the best amount to allocate to each sector in order to get the maximum efficiency of the budget.