Unit 1 - Basic Concepts of Economics and Allocation of Resources (Exercise)

 Very Short Questions

1.     What are the main causes of economic problem?

2.     Why the problems of scarcity arise?

3.     What factors lead to the divergence of market prices from natural prices?

4.     If there is no scarcity of resources, then economics will be ceased to exist. Do you agree with the statement?

5.     What is the difference between shortage and scarcity?

6.     State true or false and justify your answer: shortages are man-made.

7.     How do you solve the economic problem?

8.     What do you mean by scarcity of resources?

9.     Suppose the market is defined by Demand: Q = 154 – 2P , Supply: Q = 2 + 2P at a price of P = 16, what is the size of the shortage that will exist in the market?

10.  Load-shedding is the outcome of shortage of hydroelectricity. Do you agree?

11.  What is opportunity cost?

12.  Give any example of opportunity cost.

13.  What term describes the value of resources if used in their next best available use?

14.  What are the opportunity costs of using Facebook?

15.  What is the opportunity cost of studying in a college?

16.  If a business owner is using the extra space at home for his business, does it imply a zero-opportunity cost the space?

17.  Should opportunity cost be negative?

18.  Can the opportunity cost concept really be applied to nations?

19.  What is PPC?

20.  Why is production possibility curve also called product transformation curve?

21.  When does a production possibility curve becomes straight line?

22.  List the assumption of production possibility curve.

23.  What are different shapes of PPC.

24.  Why does PPC shift downward?

25.  Which area of a product possibility graph represents feasible but inefficient output combinations?

26.  The negative slope of the production possibility curve represents the idea of?

27.  The typical shape of the production possibility curve is downward sloping. Why?

28.  What goes on the x-axis and y-axis on a production possibility curve?

29.  What is allocation of resources?

30.  How is 'what to produce' is problem of resource allocation?

31.  Define capital-intensive technique.

32.  Define labor-intensive technique.

33.  What are the central problems of an economy?

34.  List the major factor of production.

35.  What is division of labor?

36.  Give an example of division of labor.

37.  Mention any four advantages of division of labor and specialization.

38.  Point out any four disadvantages of division of labor.

39.  What is meaning of specialization?

40.  Write down types of economic system.

41.  Define mixed economy.

42.  Mention any two features of mixed economy.

43.  Explain command economy with examples.

44.  Who decides allocation of resources in the mixed economy?

45.  Under which economic system would factors of production most likely be owned by the government?

46.  What is market economy?

47.  Mention any two merits of market economic system.

48.  List any four features of market economy.

49.  What kind of economic systems invite corruption and tax evasion?

50.  If a country has strong protection of private property rights and relatively few laws that restrict the choices people can make, what is the country's economic system.

51.  What is the economic system adopted by Nepal?

52.  Why do economies like ours use both business (the free market) and the government to make our economic decision?

53.  Which type of economy is better: a free-market economy or a planned economy?

Short Questions

1.     Write short note on scarcity and choice.

2.     Show the connection between scarcity and choice with suitable examples.

3.     How can you explain scarcity to someone who is wealthy?

4.     Scarcity is the mother of all economic problems. Explain.

5.     (a) what is scarcity? (b) Why does it exist? (c) How is scarcity related to the study of economics?

6.     What is an opportunity cost? Explain it with an example.  

7.     Explain the concept of production possibility curve with the help of a table and a figure.

8.     Why does a production possibility curve expand outwards?

9.     Write short note on shift in PPC.

10.  Why does PPC shifts outwards?

11.  Explain how, if at all, each of the following affects the location of a country's production possibilities curve:

    a. The quality of education increases.

    b. The number of unemployed workers increases.

    c. A new technique improves the efficiency of extracting copper from ore.

    d. A devastating earthquake destroys numerous production facilities.

12.  Explain the relationship between opportunity cost and the shape of the production possibility curve.

13.  Where would a country want to be on the production possibilities curve: inside, outside, or on the curve? Why?

14.  Suppose an earthquake destroys over 40 percent of a nation's production capacity. How would this affect the nation's production possibilities curve? Explain.

15.  Suppose the quality of education in a nation's colleges and universities greatly improves. How would this affect the nation's production possibilities curve? Explain

16.   What is meant by allocation of resources?

17.  What are the basic problems related to allocation of resources?

18.  Write short not on 'allocation of resources'.

19.  Explain how decision of what to produce is taken in the economy.

20.  Explain the advantages of division of labor.

21.  What are the disadvantages of division of labor?

22.  Define an economy including various activities.

23.  What is market economy? What are its characteristics or features?

24.  Describe the advantages and disadvantages of market economy.

25.  What are the features of command economy?

26.  China is currently a socialist economic system. In view of China's explosive growth in supplying goods to the world do you see China becoming more of a market economic system. Why/why not?

27.  Distinguish between capitalist and socialist economic systems.

28.  List and explain three reasons why national economies which have a market economic system tend to be more successful and prosperous than national economies which have a command economic system.

29.  Why are many mixed economies converting to market-based system? How does the role of government change when a mixed economy transitions to a market economy?

30.  Why does communism/socialism not allow a free-market economy?

31.  Describe the features of mixed economy.

32.  Is a mixed economy the best economic model? Explain.

33.  Classify the following characteristics of different types of economies and put them in appropriate boxes.

Profit motive, Central planning, Consumer Sovereignty, Public and private sector, Laws of inheritance, Social welfare, Government regulations, Subsidy, Competition, Price mechanism, Inequalities, No class conflict, Economic planning and Limited freedom of choice.

Long Questions

1.     'The root cause of all economic problems is scarcity.' Discuss.

2.     'Economics is the science of choice'. Discuss.

3.     Explain the concept of scarcity and choice.

4.     Explain the concept of opportunity cost with example.

5.     'The production possibility curve shows the maximum amount of a good that can be the produced for each given level of other good'. Explain.

6.     Explain the concept of production possibility curve. Why does a production possibility curve expand outwards? Explain with suitable diagram.

7.     Describe the production possibility curve graphically. Why is the production possibility curve concave? Be sure to explain economic intuition behind that fact.

8.     Why is the production possibility curve downward sloping? Be sure to explain economic intuition behind that fact. Below is production possibilities table for consumer goods (automobiles) and capital goods (forklifts).

Types of Production	Production Alternatives
	A	B	C	D	E
Automobiles	0	2	4	6	8
Forklifts	30	27	21	12	0

• Show these data graphically. Upon what specific assumptions is this production possibilities curve bases?
• If the economy is at point C, what is the cost of one more automobile? Of one more forklift? Explain how the production possibilities curve reflects the law of increasing opportunity costs.
• If the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you conclude about its use of available resources?
• What would production at a point outside the production possibilities curve indicate? What must occur before the economy can attain such a level of production?

9.     Define allocation of resources. What are the problems of allocation of resources?

10.  Define division of labor. Explain its advantages and disadvantages.

11.  What is meant by an economy? Give the major characteristics of a capitalist economy.

12.  Explain the types of economy on the basis of ownership and control over means of production.

13.  What are the distinct elements and features that differ between capitalism, planned economies, and mixed economies?

Project Work

1. Go to a firm, industry or factory in your community, observe the study, look for examples of division of labor or specialization, collect pictures and present them in class.  Prepare a questionnaire and go to a local industry and discuss or interview and identify and present the benefits of division of labor and specialization.
2. Present the advantages and disadvantages of division and specialization of labor by preparing questionnaire and interviewing or discussing with the concern authority of any specific local firm or factory.
3. Collect the name of different types of resources which are available in your locality. Present them in a table under different headings (Natural or artificial resources).
4. Prepare a report on the economic system adopted by Nepal by discussing in the class.