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Published on: 26/07/2019
Economics, Economy and Its Central Problems
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Questions + Answers key
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1.
Central economic problems are the problems of a ......... .
market economy
socialist economy
mixed economy
All of these
2.
In free market economy, the allocation of resources is determined by ...... .
votes by consumers
a central planning authority
consumer preference
the level of profits of firms
3.
Which one of the following is not the feature of socialist economy?
Social welfare
Freedom of enterprise
Public ownership
Planning mechanism
4.
The study of microeconomics and macroeconomics is ......... .
independent of each other
interrelated to each other
both (a) and (b)
None of the above
5.
Which of the following is related to microeconomics?
Inflation in the economy
Problem of unemployment
National Income
Income from the railways
6.
What is ‘Merginal Rate of transformation’? Explain with the help of an example.
7.
Explain the problem of 'what to produce'.
8.
Explain the problem of 'how to produce'.
9.
To what extent you would agree with the statement that any 'scare good commands high price'?
10.
Discuss the subject matter of economics.
11.
Give three examples of microvariables and macrovariables
12.
When allocation of resources is considered as inefficient?
13.
What does slope of PPC show?
14.
What does a point below PPC indicate?
15.
What does a rightward shift of PPC indicate?
16.
Why does economic problem arise?
17.
What is meant by scarcity of resources?
18.
Name any two central problems of an economy.
19.
What is an economy?
20.
Why is the study of consumer's equilibrium a subject matter of microeconomics?
21.
State any two central problems under 'problem of allocation of resources'.
22.
Lot of people died and many factories are destroyed because of severe earthquake in a country. How will it affect the country's PPC?
23.
Define Marginal Opportunity Cost. Explain the concept with a hypothetical numerical example.
24.
How does an economic problem arise? Is it true to say if resources had not been limited, there would not have been any economic problem?
1.
All of these
2.
Consumer preference
3.
Freedom of enterprise
4.
Interrelated to each other
5.
Income from the railways (as it refers to an individual industry).
6.
MRT is the rate at which the units of one good have to be sacrificed to produce one more unit of the other good in a two goods economy. Suppose an economy produces only two goods X and Y. Further suppose that by employing these resources fully and officiently, the economy produces 1X + 10Y. If the economy decides to produce 2X, it has to cut down production of Y by 2 units. Then 2Y is the opportunity cost of producing 1X. Then 2Y:1X is the MRT.
7.
An economy has millions of commodities to produce. It has to decide which goods and services to be produced and that should be in sufficient quantity, as all the goods cannot be produced due to scarcity of resources. e.g. an economy has to decide whether to produce luxury goods or inferior goods, capital goods or consumer goods.
This problem has two dimensions:
(i) Types of goods to be produced.
(ii) Quantity of goods to be produced.
8.
The problem of 'how to produce' is a problem relating to choice of techniques. Broadly, it is the problem of deciding the techniques of production which are to be used.
There are two type of techniques of production, which are as follow:
(i) Labour intensive technique It is that technique in which labour is used more than capital.
(ii) Capital intensive technique It is that technique in which capital is used more than labour.
9.
This is very correct to say that only scarce goods are high in price. This can be supported by the water, diamond paradox. Though water is very useful for all living being, however, it is very low priced as it is available in plenty. On the other hand, diamond which is not so useful is still very high in price due to its relative scarcity.
10.
Economics is concerned with the study of economic problems at the level of an economy as a whole, on one side and on the other, it is concerned with the study of an individual too. The subject matter of economics is studied under two broad branches viz microeconomics and macroeconomics.
Vital theories or studies of microeconomics are:
(i) Theory of consumer behaviour.
(ii) Theory of price.
(iii) Theory of producer behaviour.
Vital theories or studies of macroeconomics are:
(i)Theory related to equilibrium level of output and employment.
(ii) Theory related to inflationary and deflationary gap in the economy.
(iii) Theory of multiplier.
(iv) Study of government budget.
(v) Study of exchange rate and Balance of Payments (BoP).
11.
Examples of microvariables are:-
(i) Consumer's demand
(ii) Market price of a commodity
(iii) Firm's output (supply)
Examples of macrovariables are:
(i) Aggregate Demand in the economy.
(ii) General price level in the economy.
(iii) Aggregate Supply in the economy.
12.
( )
Allocation of resources is considered as inefficient when economy performs below tje PPc curve.
13.
( )
Negative slope of PPC shows that in order to produce more units of one good, some units of the other good must be sacrificed.
14.
( )
It shows inefficient/under-utilization of resources.
15.
( )
The rightward shift of PPC indicates growth of resources, production of one good can be increased only with less of other good.
16.
( )
It arises mainly because of scarcity of resources.
17.
( )
Scarcity of resources means limited availability of resources in relation to demand.
18.
( )
The central problems of an economy are:
(i) What to produce and in what quantities?
(ii) How to produce?
(iii) For whom to produce?
(any two)
19.
( )
Economy means the whole collection of production units operating in a well defined area or region, by which people Of that area earn their living
20.
( )
Consumer equilibrium is a subject matter of micro economics because it is a study of individual behaviour.
21.
( )
(a) What to produce and in what amount?
(b) How to produce?
(c) For whom to produce?
(any two)
22.
With the death of lot of people due to severe earthquake, working force in a country will fall. Similarly, destruction of factories will cause a reduction in the stock of capital in a country. Thus, earthquake causes decrease in labour 'and capital resources of a country. This decrease in resources causes a shift of production possibilities curve to the left showing less production of both the goods than before.
23.
MOC or MRT is defined as the addition made to the cost in terms of number of units of a good sacrificed to produce one more unit of the other goods.
Schedule
| Combination | Good X(units) | Good Y (units) | MOC |
| A | 0 | 10 | ----- |
| B | 1 | 9 | 1Y:1X |
| C | 2 | 7 | 2Y:1X |
| D | 3 | 4 | 3Y:1X |
| E | 4 | 0 | 4Y:1X |
In the given schedule, there are five combinations. Combination A depicts none of X and all of Y and combination E denotes nothing of Y is produced and all resources are utilised to produce Y. In combination B, to produce 1 unit of X, one unit of Y is sacrificed. In this way we observe that to have one more unit of X, 1Y, 2Y's, 3Y's and 4Y's are sacrificed respectively. This shows the increasing rate of sacrifice or MOC.
24.
An economic problem mainly arises on account of the scarcity of the resources available to satisfy the unlimited human wants. To a large extent, if the resources were not limited, the economic problem would not have arisen, because every want could be satisfied, i.e., everyone could have everything. But this indeed is not true as the reality is that relative scarcity will continue to prevail and the other related problem -of 'choice' would always exist. One is always confronted with the problem of what to choose and what to give up, i.e., sacrifice. Thus, scarcity, being a relative term, will always exist and so would an economic problem.
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