What is economics? practice questions.

The basic economic question 'for whom to produce' is primarily concerned with

• the choice of production techniques
• which goods and services should be produced
• how to raise the productivity of labour
• how output and income are shared out

Answer: how output and income are shared out

'For whom' asks how the goods produced (and the income to buy them) are shared out; 'what' concerns the choice of goods and 'how' concerns production methods.

In a mixed economy, decisions about resource allocation are made by

• the price mechanism plus government intervention
• the government alone, through central planning
• private firms alone, responding to consumer demand
• tradition and custom passed down between generations

Answer: the price mechanism plus government intervention

A mixed economy combines market forces (the price mechanism) with government intervention; virtually all real-world economies are mixed.

In the simple two-sector circular flow of income model, households provide factors of production to firms and receive in return

• transfer payments
• goods and services supplied to them free of charge
• government subsidies
• factor incomes: wages, rent, interest, profit

Answer: factor incomes: wages, rent, interest, profit

Firms pay households factor incomes (wages for labour, rent for land, interest for capital, profit for entrepreneurship) in exchange for factor services.

Which of the following best captures the meaning of sustainability in economics?

• Meeting present needs without harming future generations
• Maximising current output regardless of resource depletion
• Keeping the government budget balanced every year
• Ensuring that all citizens receive equal incomes

Answer: Meeting present needs without harming future generations

Sustainability requires that today's consumption and production do not destroy the resource base and environment on which future generations depend.

A bakery uses all of the following. Which one is an example of the factor of production capital?

• The delivery van it owns
• The 5 000 dollars in its bank account
• The wheat field its flour is grown on
• The skill and effort of its bakers

Answer: The delivery van it owns

Capital is a manufactured resource used to produce other goods, such as machinery, tools or vehicles. Money is finance rather than a productive resource, the field is land, and the bakers' effort is labour.

Which statement correctly identifies the difference between scarcity and a shortage?

• Scarcity occurs only in low-income economies, while a shortage can occur in any economy, whatever its level of income
• Scarcity is the permanent gap between limited resources and unlimited wants, while a shortage is excess demand at one price
• Scarcity means that a good has run out completely, while a shortage means the good is available but only at a higher price
• Scarcity is caused by producers holding back output, while a shortage is caused by consumers buying more than they need

Answer: Scarcity is the permanent gap between limited resources and unlimited wants, while a shortage is excess demand at one price

A shortage is tied to one particular price and disappears when the price rises; scarcity is the underlying condition that no price can remove, which is why every choice still carries an opportunity cost.