The correct option is 1 only
Explanation
Economics fundamentally deals with the allocation of scarce resources to satisfy unlimited human wants. The mechanism by which an economy determines what to produce is central to resource allocation, whether through price signals in a market economy or planning in a command economy.
Statement 1 is Correct:
Resource allocation is dynamic. If the aggregate desire or demand for a specific good exceeds its current supply, it indicates a societal preference for that good over others. To meet this increased demand, scarce resources (such as labor, capital, and raw materials) must be diverted or reallocated from the production of less desired goods to the production of the high-demand good.
Statement 2 is Incorrect:
The allocation of resources is heavily dependent on the "likes and dislikes" (preferences) of the people. In a market economy, this is termed Consumer Sovereignty, where consumer demand dictates where resources are deployed. Even in a mixed or planned economy, the ultimate goal of resource allocation is to maximize social welfare, which is a function of the people's needs and preferences. Therefore, allocation is not independent of societal choices.
Key Takeaway:
Resource allocation is the process of distributing scarce factors of production to meet societal demands; it is directly influenced by consumer preferences and scarcity.