Economics 3 Marks Question

The firms enter the industry when they find that the existing firm earning super normal profits. Their entry raises supply of the product of the industry brings down the market price and thus reduce profits. Their entry continue till profits are reduced to normal (or zero).On the other hand the firms start leaving industry when they are facing losses. This reduces output of the industry raises market price and reduces losses. The exit continues till the losses are wiped out. Hence in the long run, firms earn only normal profit.

There are three reasons which give rise to an economic problem.:
i. Wants of people are unlimited - It is due to unending circle of wants. After the satisfaction of one wants, another want arises.
ii. Resources are limited - Problem of allocation of resources arises because resources are not enough to satisfy wants of every individual.
iii. Resources have alternative uses - Scarce resources have alternative uses. When an individual chooses to use a given resources for something, he/she is unable to use that resources for anything else.