Chapter 2: Allocation of resources, specialisation and trade

Question 1

Define resource allocation

Answer 1

The way in which a society’s productive assets are deployed across their alternative uses

Question 2

Define market economy

Answer 2

Market forces are allowed to guide the allocation of resources within a society

Question 3

Define centrally planned economy

Answer 3

The government guides resource allocation within a society

Question 4

Define mixed economy

Answer 4

A combination of market forces and government intervention guides the allocation of resources within a society

Question 5

Define capitalisation

Answer 5

A system of production in which there is private ownership of productive resources, and individuals are free to pursue their objectives with minimal interference from government

Question 6

Define invisible hand

Answer 6

Term used by Adam Smith to describe the way in which resources are allocated in a market economy

Question 7

Define specialisation

Answer 7

The process of concentrating on a task or activity in order to become expert in it

Question 8

Define division of labour

Answer 8

A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to particular stages

Question 9

Define market

Answer 9

A set of arrangements that allows transactions to take place

Question 10

Define barter system

Answer 10

An economy without money so that transactions in goods and services rely on direct exchange

Question 11

Define money as a medium of exchange

Answer 11

The function of money that enables transactions to take place