Ch.2

• What is resource allocation?


  The way in which a society’s productive assets are deployed across their alternative uses
• What is a market economy?


  A system where market forces guide the allocation of resources
• What defines a centrally planned economy?


  The government guides resource allocation within a society
• What is a mixed economy?

  A combination of market forces and government intervention guides resource allocation
• What is capitalism?


  A system of production with private ownership of productive resources
• Who coined the term "invisible hand"?

  Adam Smith
• What is specialisation in economics?


  The process of concentrating on a task to become an expert in it
• What is the division of labour?


  A process where production is broken down into stages with workers assigned to each stage
• What is a market in economics?


  A set of arrangements that allows transactions to take place
• How does a barter system function?


  Goods and services are exchanged directly for other goods and services
• What is the role of money as a medium of exchange?


  It enables transactions to take place
• Why are incentives important in economics?


  They influence how economic agents respond to changes in the market
• How do consumers typically respond to lower prices?


  By increasing demand
• How do firms respond to higher profits?


  By increasing supply
• What is the assumption about economic agents in relation to incentives?


  They react rationally to achieve their objectives
• What factors influence the allocation of resources in a mixed economy?


  The will of the people, government objectives, and availability of resources
• How does specialisation contribute to efficient resource allocation?


  It allows workers to perform tasks better and faster
• What is the significance of dividing labour in firms?


  It allows workers to become experts in specific tasks, increasing efficiency
• What is the purpose of the textbook questions provided?


  To assess understanding of key concepts in economics
• What are the three main types of economies?

  • Planned economy: government controls production and resource allocation
  • Mixed economy: combination of market forces and government policies
  • Market economy: allocation decided by supply and demand
• What are the advantages of a mixed economy?

  • Combines benefits of planned and market economies
  • Allows for government control of essential services
  • Provides flexibility in resource allocation
• How does specialisation and division of labour address scarcity?


  • Increases productivity and efficiency
  • Allows for better use of resources
  • Enables workers to focus on specific tasks
• What is the relationship between markets and resource allocation?


  • Markets facilitate transactions
  • Prices signal supply and demand
  • Help determine how resources are allocated
• What is the role of government in a market economy?


  • Regulates certain industries
  • Provides public goods and services
  • Ensures fair competition
• What is the significance of the barter system?


  • Allows for direct exchange of goods and services
  • Emerged before the use of money
  • Facilitates specialisation among producers
• What are the key components of incentives in economics?


  • Influence behavior of economic agents
  • Can be monetary or non-monetary
  • Affect demand and supply dynamics
• How do different political systems affect resource allocation?


  • Varying priorities for goods and services
  • Influence on government control vs. market forces
  • Impact on societal welfare and resource distribution
• What is the importance of the PPC curve in economics?


  • Represents trade-offs in resource allocation
  • Illustrates opportunity costs
  • Helps visualize efficiency and scarcity