Exam code: 0455 & 0987
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Define economic good.
An economic good is a product or service that is scarce in relation to demand, has a price, and is supplied to make a profit.
Define free good.
A free good is a product that is abundant in supply and cannot be sold for a profit.
True or False?
Sunlight and air are examples of economic goods.
False.
Sunlight and air are free goods because they are abundant and cannot be sold for a profit.
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Define economic good.
An economic good is a product or service that is scarce in relation to demand, has a price, and is supplied to make a profit.
Define free good.
A free good is a product that is abundant in supply and cannot be sold for a profit.
True or False?
Sunlight and air are examples of economic goods.
False.
Sunlight and air are free goods because they are abundant and cannot be sold for a profit.
Why do producers supply economic goods but not free goods?
Producers supply economic goods because they are scarce and have value, allowing profit to be made, whereas free goods are abundant and cannot be sold for a profit.
Define the basic economic problem.
The basic economic problem is that resources are scarce compared to the infinite wants and needs of humans.
What is the difference between needs and wants in economics?
Needs are essential to human life, such as shelter and food, while wants are non-essential desires, like a yacht or better housing.
Define scarcity.
Scarcity is the mismatch between finite resources and infinite wants and needs, meaning not all wants and needs can be satisfied.
How does scarcity influence economic choices?
Scarcity forces producers, consumers, workers, and governments to make choices about the most efficient use of limited resources.
True or False?
The scarcer a resource is, the higher its price will be in a free market.
True.
Scarcity increases prices because consumers are willing to pay more for limited resources.
How does the basic economic problem affect government decisions?
Governments must make choices about resource allocation, such as whether to provide certain goods and services or leave them to private firms.
Define economic system.
An economic system is the way a society organises the production, distribution and consumption of goods and services to solve the problem of scarcity.
What are the three basic economic questions every economic system must answer?
The three basic economic questions are: what to produce, how to produce and for whom to produce.
Who are the main economic agents in an economy?
The main economic agents are consumers, producers, the government and special interest groups.
What is the basic economic problem that economic systems aim to solve?
The basic economic problem is scarcity, which is the limited nature of resources compared to unlimited wants.
Define market economy.
A market economy is an economic system where decisions are made by individuals and private firms with little or no government intervention.
Define planned economy.
A planned economy is an economic system in which the government makes all key economic decisions and owns or controls resources.
Define mixed economy.
A mixed economy combines features of both market and planned economies, with decision-making shared between the private sector and the government.
How does a market system answer the question: What to produce?
In a market system, what gets produced is determined by demand and supply through the price mechanism.
How does a planned economy decide for whom goods and services are produced?
In a planned economy, goods and services are produced for everyone, as the government aims to ensure equal access for all.
True or False?
Each economic system answers the three basic economic questions in the same way.
False.
Each economic system answers the three basic economic questions differently.