Chapter 6: The Role of Markets in Allocating Resources

Question 1

What are the three questions all economies have to answer?

Answer 1

-What to produce?
-How to produce it?
-Who is to receive the products produced?

Question 2

True or False?

A firm will answer the question: “what to produce” by knowing what product offers them the smallest potential of profit.

Answer 2

False,
A firm will answer the question: “what to produce” by knowing what product offers them the largest potential of profit.

Question 3

True of False?

A firm will answer the question: “how to produce” by deciding whether to use more capital or more labour.

Answer 3

True

Question 4

True or False?

A firm will answer the question: “Whom to produce” by knowing who the products will be distributed to according to their needs and ability to purchase it.

Answer 4

True

Question 5

What is an economic system?

Answer 5

It is the institutions, organisations, and mechanisms that influence economic behaviour and determine how resources are allocated.

Question 6

How many main economic systems are there?

Answer 6

3

Question 7

What are the three main economic systems?

Answer 7

Planned, mixed, and market

Question 8

What is planned economic system?

Answer 8

It is an economic system where the government makes all the decisions and owns most or all of the land, capital, and labour.

Question 9

What are directives?

Answer 9

Instructions given by the state to state-owned enterprises

Question 10

What is mixed economic system?

Answer 10

It is an economy where both the private and public sectors play an important role

Question 11

What is market economic system?

Answer 11

It is an economy where the consumers determine what is produced, resources are allocated by the price mechanism, and land and capital are privately owned.

Question 12

What is price mechanism?

Answer 12

It is the way the decisions made by the households and firms interact to decide the allocation of resources

Question 13

What does it mean when a firm is capital-intensive?

Answer 13

It means they use a high proportion of capital relative to labour(more capital than labour)

Question 14

What does it mean when a firm is labour-intensive?

Answer 14

It means they use a high proportion of labour relative to capital(more labour than capital)

Question 15

Choose which option fits best in the statements:

Firms will seek to achieve the (lowest/highest) cost method of production while producing the (lowest/highest) quality of products.

Answer 15

Lowest, highest

Question 16

How does the price change of a product (depending on…)

Answer 16

Depending on the interaction of supply and demand

Question 17

What is demand?

Answer 17

The willingness and ability to buy a product

Question 18

What is supply?

Answer 18

The willingness and ability to sell a product

Question 19

What’s the difference between market equilibrium and market disequilibrium?

Answer 19

Market equilibrium is when the demand and supply are equal at a current price while market disequilibrium is when the demand and supply are not equal at a current price.