Chapter 2: The Three Basic Economic Problems and Private Property Rights

1. Which of the following are about the ‘what to produce’ problem?

(1) the colour of handbags that a factory produces

(2) the quantity of handbags that a factory produces

(3) the number of workers that a factory employs to produce handbags

• A. (1) and (2) only

• B. (1) and (3) only

• C. (2) and (3) only

• D. (1), (2) and (3)

2. Which of the following is related to the ‘how to produce’ problem?

• A. A factory decides to adopt a new production system to save energy.

• B. A manufacturer decides to develop a new series of mobile computing devices.

• C. A magazine publisher decides to provide a digital version of its magazine on the Internet.

• D. The government decides to adjust the ratio of public rental housing flats to Home Ownership Scheme (HOS) flats.

3. Which of the following are related to the ‘for whom to produce’ problem?

(1) A clinic serves patients on a first-come-first serve basis.

(2) A public hospital employs more nurses to provide better services.

(3) A canteen in a private hospital provides special meals for certain patients.

• A. (1) and (2) only

• B. (1) and (3) only

• C. (2) and (3) only

• D. (1), (2) and (3)

4. As announced by the Chief Executive in the 2017 Policy Address, the ‘Starter Homes’ Pilot Scheme would soon be introduced. The aim was to offer, in addition to private housing units, a specified number of affordable flats for sale to the ‘first-time buyers’ who have never owned any property in Hong Kong and meet other prescribed eligibility criteria.

The above case is related to the ______ question(s) in economics.

• A. ‘what to produce’

• B. ‘what to produce’ and ‘how to produce’

• C. ‘what to produce’ and ‘for whom to produce’

• D. ‘how to produce’ and ‘for whom to produce’

5. The government proposed to purchase places from private residential care homes to ease the shortage of subsidised residential care places for the elderly. The service hours of new elderly day care centres would also be extended to enhance the elderly community care services.

The above proposal is related to the _________ question(s) in economics.

• A. ‘what to produce’

• B. ‘what to produce’ and ‘how to produce’

• C. ‘what to produce’ and ‘for whom to produce’

• D. ‘how to produce’ and ‘for whom to produce’

6. After the US government announced that it would impose a tariff on steel, Harley-Davidson, a producer of motorcycles, decided to move some of its production chains away from the US. The spokesman explained that the company expected the cost of steel in the US to increase sharply after the tariff was imposed. The move could reduce costs.

This is an example of using _________ to solve the problem of ________ .

• A. government command … ‘how to produce’

• B. government command … ‘for whom to produce’

• C. market mechanism … ‘how to produce’

• D. market mechanism … ‘for whom to produce’

7. Which of the following statements about a planned economy is CORRECT?

• A. Scarcity does not exist.

• B. There is no problem of unemployment.

• C. Everyone receives the same amount of resources.

• D. The government makes most of the production decisions.

8. Which of the following is a characteristic of a planned economy?

• A. There are no private property rights in the economy.

• B. Income distribution is relatively even in the economy.

• C. The problem of scarcity does not exist in the economy.

• D. Most resources of the economy are owned by the state.

9. In a market economy, ___________.

• A. there is only price competition

• B. all resources are privately owned

• C. all goods are economic goods

• D. most resources are allocated by price mechanism

10. Which of the following about a planned economy and a market economy must be CORRECT?

• A. Compared to a planned economy, a market economy has a higher inflation rate.

• B. Compared to a planned economy, more resources are privately owned in a market economy.

• C. The income gap between the rich and the poor in a market economy is larger than that in a planned economy.

• D. The unemployment rate in a market economy is higher than that in a planned economy.