Fundamental Questions
Name the three fundamental economic questions.
What to produce, how to produce, and for whom to produce.
Elders divide fishing areas according to customs used for generations.
Traditional economy.
Which market is used when households buy finished goods and services?
The product market.
Why does government regulation not automatically make an economy a command economy?
Private ownership and market decisions can remain even when government establishes rules.
What is an incentive?
A reward or consequence that changes or influences behavior.
A factory replaces workers on one production line with machines. Which fundamental question is being answered?
How to produce.
A central agency owns major factories and sets output targets.
Command economy.
What real resource do most households provide to businesses in the factor market?
Labor.
Government sells a publicly owned ferry service to private investors. Name the change
Privatization.
A country puts more emergency resources into food and less into road repair. What economic concept does this demonstrate?
A tradeoff or opportunity cost.
A government gives scarce medicine first to patients with the most urgent medical needs. Which question is being answered, and what is the allocation rule?
For whom to produce; distribution is based on medical need.
Private firms compete for customers, and profit influences investment. Name the system and give one likely limitation.
Market economy; possible limitations include unequal access, instability, external costs, or underprovided public goods.
A hotel pays a worker, and the worker purchases lunch. Identify the two money flows.
Wages move from the business toward the household; consumer spending moves from the household toward the restaurant or business.
Give two reasons modern economies are becoming increasingly global.
Any two: trade, investment, improved transportation, communication technology, multinational production, or global supply chains.
A temporary repair bonus encourages more workers to restore electricity. Identify the incentive and intended result.
The bonus is the financial incentive; the intended result is more labor or faster electricity restoration.
Consumers begin buying more storm shutters, and firms shift resources away from decorative windows. Identify the question being answered and explain the mechanism.
What to produce; consumer demand and expected profit encourage firms to increase shutters and reduce decorative windows.
Most firms are private, but government operates the water system, regulates banks, and funds schools. Name the system and cite two clues.
Mixed economy; private firms are one clue and public ownership, regulation, or public funding is another.
Correct the error: Businesses supply labor to households in the factor market.
Households supply labor and other productive resources to businesses through the factor market; businesses provide wages or other income in return.
A port closure delays imported fuel and medicine. Explain one benefit and one vulnerability of global interdependence.
Benefit: access to goods, resources, specialization, larger markets, or lower costs. Vulnerability: foreign disruptions can cause local shortages, delays, or price increases.
A government sets an emergency price ceiling on drinking water. State one intended benefit and one possible unintended consequence.
Benefit: protects consumers from extreme prices. Possible consequence: reduced supply, shortages, long lines, rationing, or illegal resale