Economics Concepts Vocab Pretest

What is scarcity?

• Limited availability of resources

• Excessive availability of resources.

• Unlimited availability of resources.

• Abundance of resources.

Answer explanation

Scarcity refers to the basic economic problem, the gap between limited resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible. Therefore, the answer is 'Limited availability of resources'.

Define costs in economics.

• Money spent on advertising

• The price of a product

• The amount of profit made

• Expenses incurred in the production of goods or services.

Answer explanation

In economics, costs refer to the expenses involved in the production of goods or services. These expenses can include materials, labor, and all other resources used in the production process. This makes the option '

Expenses incurred in the production of goods or services.

' the correct one, as it accurately defines what 'costs' stands for in the field of economics.

Explain the concept of voluntary exchange.

• Voluntary exchange is the act of individuals or entities trading goods or services under government regulation.

• Voluntary exchange is the act of individuals or entities trading goods or services without any consideration of value.

• Voluntary exchange is the act of individuals or entities trading goods or services only when they have a surplus.

• Voluntary exchange is the act of individuals or entities willingly trading goods or services with each other, without any coercion or force.

Answer explanation

The concept of voluntary exchange is correctly described as individuals or entities willingly trading goods or services with each other, without any coercion or force. This definition excludes government regulation, the consideration of value, or the requirement of having a surplus, making it the most accurate option.

Differentiate between goods and services.

• Goods are intangible actions or tasks, while services are tangible products.

• Goods are tangible products, while services are intangible actions or tasks.

• Goods are actions or tasks, while services are tangible products.

• Goods are intangible products, while services are tangible actions or tasks.

Answer explanation

The correct answer is that goods are tangible products, while services are intangible actions or tasks. This means that goods are physical items that we can touch, such as a book or a car, whereas services are activities performed by other people for us, such as a haircut or a car repair, which we cannot touch.

What are the benefits of a free market system?

• Economic efficiency, innovation, competition, and consumer choice.

• Monopolies, lack of competition, limited consumer choice

• Inefficiency, lack of innovation, limited consumer choice

• Government control and regulation, limited consumer choice, lack of competition

Answer explanation

The free market system is advantageous due to economic efficiency, as it allows resources to be distributed based on demand and supply. It encourages innovation because companies must constantly improve to stay competitive. It promotes competition, which can lead to better products and services. Lastly, it provides consumers with a wide range of choices, enabling them to choose based on their preferences.

What is the role of buyers in an economy?

• Buyers only consume goods and services, they do not contribute to economic growth.

• Buyers decrease demand for goods and services and hinder economic growth.

• Buyers create demand for goods and services and stimulate economic growth.

• Buyers have no role in an economy.

Answer explanation

The correct answer is that buyers create demand for goods and services and stimulate economic growth. This is because by purchasing goods and services, buyers are helping to drive the economic cycle. Their spending is income for businesses, which can then invest and create more goods/services, leading to further spending and economic growth.

Describe the role of sellers in an economy.

• Sellers are responsible for setting prices in the market.

• Sellers only provide goods, not services, to consumers.

• Sellers do not play a significant role in the economy.

• Sellers offer goods and services to consumers in exchange for payment.

Answer explanation

The correct answer is that sellers offer goods and services to consumers in exchange for payment. This highlights their important role in the economy as they facilitate transactions and help distribute resources. The other options that sellers only provide goods, not services, or do not play a significant role in the economy are incorrect. Also, it's not accurate that sellers are solely responsible for setting prices, as they often react to market conditions.

What is the centrally planned system?

• An economic system in which the government controls and plans all aspects of the economy.

• An economic system in which individuals control and plan all aspects of the economy.

• An economic system in which the government has no control over the economy.

• An economic system in which the government controls only certain aspects of the economy.

Answer explanation

The question asks about the centrally planned system. The correct answer is that this is an economic system where the government controls and plans all aspects of the economy. This differs from other systems where individuals control the economy or the government only controls certain parts. Therefore, the centrally planned system is completely government-controlled, highlighting its distinctiveness.

Explain the concept of the invisible hand in economics.

• The invisible hand refers to the government's control over the economy.

• The invisible hand is a term used to describe the negative effects of self-interest in a free market.

• The invisible hand theory suggests that individuals should not pursue their own self-interest in a free market economy.

• Individuals pursuing their own self-interest in a free market economy can unintentionally benefit society as a whole.

Answer explanation

The 'invisible hand' is a concept in economics coined by Adam Smith. It holds that individuals' self-interest in a free market economy inadvertently benefits society. This principle suggests that even when people make decisions based on their self-interest, those decisions can still lead to social benefits, hence the term 'invisible hand.' This aligns with the correct choice that individuals seeking their own gain in a free market can unintentionally profit society.

How does scarcity affect the production of goods and services?

• Scarcity has no impact on the production of goods and services.

• Scarcity leads to an abundance of goods and services.

• Scarcity only affects the price of goods and services, not production.

• Scarcity creates limited supply and forces producers to make choices about resource allocation.

Answer explanation

The correct answer is 'Scarcity creates limited supply and forces producers to make choices about resource allocation.' This is because scarcity refers to the basic economic problem of having seemingly unlimited human wants in a world with limited resources. It dictates resource allocation and impacts the production of goods and services by creating a limited supply, forcing producers to make decisions about where to allocate resources most effectively.