Q.1. Explain how scarcity and choice go together.
Ans. Scarcity and choice are fundamentally related because they are driving forces behind many economic human behaviours. Resources are limited and people are required to make choice among various alternative uses of resources. Every man on the Earth faces the problem of scarcity and choice. Even the richest person in the world has to face the problem of scarcity, in terms of time. Thus, it is true that scarcity and choice go together.
Q.2. What gives rise to an economic problem?
Ans. Scarcity of resources and their various alternative uses give rise to an economic problem.
Q.3. What is meant by economic problem?
Ans. Economic problem is the problem arising from the necessity of choice.
Q.4. Why does an economic problem arise?
Ans. An economic problem arises because:
(i) Resources are scarce, and
(ii) Resources have alternative uses.
Q.5. Why is economic problem regarded as a problem of choice?
Ans. Human wants are unlimited and it is impossible to satisfy all the wants. The individual, therefore, is required to make a choice between his or her wants. Economic problem arises the moment the problem of choice arises.
Q.6. Why do problems related to allocation of resources in an economy arise? Explain.
Ans. The problems related to allocation of resources in an economy arise because of the unlimited wants of the people. The resources used to produce goods and services are limited or scarce. Resources are not only scarce but they have alternative uses also. Thus, scarcity of resources leads to the problems related to allocation of resources in an economy.
Q.7. What are the main tools of economic analysis?
Ans. The main tools of economic analysis are logic or reasoning, graphs, diagrams and functional relationships.
Q.8. What is positive economics?
Ans. Positive economics is an economic approach that studies the behaviour and functioning of different market systems without making judgments.
Q.9. What is normative economics?
Ans. Normative economics is an economic approach that analyses the consequences of economic behaviour, evaluates them as good or bad and may suggest a course of action.
Q.10. What is a market economy?
Ans. Market economy is a free economy in which economic activities are carried out through free price mechanism independent of any intervention by the central authority.