Which of the following is a key characteristic of a market economy?
Show model answer
C. Prices and markets allocate resources. A market economy relies on the price mechanism to determine how resources are allocated, rather than central planning or government ownership.
In a planned economy, who primarily decides what goods and services will be produced?
Show model answer
C. The central planning authority. In a planned economy, the government or central planning authority makes decisions about what goods and services will be produced.
What is a mixed economy?
Show model answer
C. An economy that combines elements of market and planned economies. A mixed economy features a blend of market-driven and government-directed resource allocation.
Which of the following is an example of a merit good?
Show model answer
C. Education. Merit goods are those that are under-consumed in the market due to imperfect information, and society benefits from their provision, such as education.
What is a demerit good?
Show model answer
A. A good that is over-consumed due to imperfect information in the market. Demerit goods, like tobacco or alcohol, are often over-consumed because consumers may not fully understand their negative impacts.
Which of the following is a factor of production?
Show model answer
B. Land. The factors of production are land, labour, capital, and enterprise. Land refers to natural resources used in production.
What is the primary goal of an entrepreneur?
Show model answer
B. To take risks and organise the other factors of production. Entrepreneurs play a crucial role in contemporary economies by taking risks and coordinating the other factors of production.
Which of the following best describes the basic economic problem of scarcity?
Show model answer
A. There are not enough resources to satisfy all human wants and needs. Scarcity is a fundamental economic problem that arises because resources are limited relative to human wants.
What is the opportunity cost of a choice?
Show model answer
B. The next best alternative forgone. Opportunity cost is the value of the next best alternative that must be given up to pursue a certain action.
Which of the following is a characteristic of a public good?
Show model answer
C. It is non-excludable and non-rival. Public goods, such as national defence, are available to all and do not diminish in supply as more people use them.
What is the main difference between a free good and an economic good?
Show model answer
B. Free goods are unlimited in supply and have no opportunity cost, while economic goods are scarce and have an opportunity cost. Examples of free goods include air and sunlight, which are abundant and do not require resource allocation.
Which of the following is an example of a private good?
Show model answer
B. A loaf of bread. Private goods are excludable and rival, meaning they can be withheld from those who do not pay for them and their consumption by one person reduces their availability to others.
What is the primary role of the price mechanism in a market economy?
Show model answer
B. To allocate resources and ration goods and services. The price mechanism signals scarcity and guides the allocation of resources in a market economy.
Which of the following best describes the concept of ceteris paribus?
Show model answer
A. All other factors remain constant while one factor changes. Ceteris paribus is a Latin phrase meaning 'all other things being equal,' used to isolate the effect of one variable on another.
What is the significance of the time period in economic analysis?
Show model answer
B. It helps to distinguish between the short run and the long run, affecting the flexibility of factors of production. The time period is important because it determines the flexibility of factors of production and the ability of the economy to adjust to changes.