General

Question 1

Definition of Price Mechanism

Answer 1

The invisible hand; the interaction of supply and demand; the allocation of resources

Question 2

Definition of Free Market Economy

Answer 2

Where resources are allocated by the price mechanism and there is no government intervention

Question 3

Definition of Market Failure

Answer 3

The price mechanism leads to a net welfare loss, inefficient allocation of resources.

Question 4

Definition of Division of Labour

Answer 4

Production of a good is broken down into different tasks and labour allocated to each task

Question 5

Definition of Government Failure

Answer 5

Government intervention leads to a net welfare loss, inefficient allocation of resources.

Question 6

Definition of Public Good

Answer 6

A good which has non-rivalry and non-excludability characteristics.

Question 7

Definition of Mixed Economy

Answer 7

Resources are partly allocated by the price mechanism, market and partly by the government

Question 8

Explanation of Free Rider Problem

Answer 8

The difficulty in charging people for consuming a good once it is provided