The Basic Economic Problem : Scarcity And Choice

1. In a mixed economy, resources are used as a result of

The decisions of consumers only.

The decisions of firms only.

The decisions of consumers and firms.

The decisions of consumers, firms and government.

In a mixed economy, resources are used as a result of the decisions of consumers, firms, and the government. This means that all three entities play a role in determining how resources are allocated and utilized. Consumers make decisions through their purchasing power and demand for goods and services. Firms make decisions based on market demand and profitability. The government also makes decisions through policies and regulations that affect the economy. Together, these three groups shape the allocation and utilization of resources in a mixed economy.

Explanation

In a mixed economy, resources are used as a result of the decisions of consumers, firms, and the government. This means that all three entities play a role in determining how resources are allocated and utilized. Consumers make decisions through their purchasing power and demand for goods and services. Firms make decisions based on market demand and profitability. The government also makes decisions through policies and regulations that affect the economy. Together, these three groups shape the allocation and utilization of resources in a mixed economy.

2. Which of the following is a factor of production?

The payment of interest on a bank loan

The profit declared by a company in its annual report

The skill of the managers of a business

The taxes paid to the government

The skill of the managers of a business is considered a factor of production because it contributes to the production process and the overall success of the business. Managers play a crucial role in organizing and coordinating resources, making decisions, and ensuring efficient operations. Their skills and expertise directly impact the productivity and profitability of the business. Therefore, the skill of the managers can be categorized as a factor of production alongside other traditional factors such as land, labor, and capital.

Explanation

The skill of the managers of a business is considered a factor of production because it contributes to the production process and the overall success of the business. Managers play a crucial role in organizing and coordinating resources, making decisions, and ensuring efficient operations. Their skills and expertise directly impact the productivity and profitability of the business. Therefore, the skill of the managers can be categorized as a factor of production alongside other traditional factors such as land, labor, and capital.

3. A farmer decides to use a more fertile field. As a result he is able to produce the same output as before but with fewer workers and less equipment.

This is a substitution in which

Capital replaces labour and land.

Labour replaces capital and land.

Land replaces capital and enterprise.

Land replaces capital and labour.

In this scenario, the farmer decides to use a more fertile field, which implies that the land is replacing the capital and labor. By utilizing a more fertile field, the farmer is able to maintain the same level of output as before but with fewer workers and less equipment. This indicates that the land is substituting for both the capital (equipment) and labor (workers) that were previously required.

Explanation

In this scenario, the farmer decides to use a more fertile field, which implies that the land is replacing the capital and labor. By utilizing a more fertile field, the farmer is able to maintain the same level of output as before but with fewer workers and less equipment. This indicates that the land is substituting for both the capital (equipment) and labor (workers) that were previously required.

4. What can happen in a planned economy that does not happen in a market economy?

The allocation of resources can take account of the total effects on society.

There can be full employment of factors of production.

There can be inflation.

There can be international trade.

In a planned economy, the allocation of resources can take into consideration the overall impact on society. This means that decisions regarding resource allocation are made with the goal of maximizing societal welfare and addressing social needs. In contrast, in a market economy, resource allocation is driven by individual choices and profit motives, which may not always align with the best interests of society as a whole. Therefore, the ability to consider the total effects on society is a unique characteristic of a planned economy.

Explanation

In a planned economy, the allocation of resources can take into consideration the overall impact on society. This means that decisions regarding resource allocation are made with the goal of maximizing societal welfare and addressing social needs. In contrast, in a market economy, resource allocation is driven by individual choices and profit motives, which may not always align with the best interests of society as a whole. Therefore, the ability to consider the total effects on society is a unique characteristic of a planned economy.

5. The table shows the various combinations of food and clothing which a village can produce using all its resources.
food units clothing units 0 500 100 400 200 250 300 50 400 0 What is the opportunity cost to the village of increasing the production of food from 200 to 300 units?

50 units of clothing

100 units of clothing

200 units of clothing

250 units of clothing

The opportunity cost of increasing the production of food from 200 to 300 units is 200 units of clothing. This means that in order to produce an additional 100 units of food, the village has to give up producing 200 units of clothing.

Explanation

The opportunity cost of increasing the production of food from 200 to 300 units is 200 units of clothing. This means that in order to produce an additional 100 units of food, the village has to give up producing 200 units of clothing.