Concepts of Economics Questions and Answers [With PDF]
Before you can understand demand, supply or national income, you need to know the basic building blocks of economics: resources, goods, income, saving and investment. This chapter explains them in plain language, with examples you can use in exams. Here are 25 important questions with clear answers.
This is Chapter 2 of our Economics course. It follows Introduction to Economics.
Economic Resources
Q1. What are economic resources?
Economic resources (also called wealth in classical economics) are things that satisfy human wants, are limited in supply, and can be obtained only by paying a price. Everything useful is not an economic resource. Air is useful, but because it is free and plentiful it is not one.
Q2. What are examples of economic resources?
- Land, houses and buildings
- Furniture and computers
- A doctor’s services
- A teacher’s lessons
Q3. What are the characteristics of an economic resource?
| Characteristic | Meaning |
|---|---|
| Utility | It can satisfy a human want. Without utility, nobody will pay for it. |
| Scarcity | Its supply is limited compared with demand. Sunlight and wind have utility but are not scarce, so they have no price. |
| Transferability | Ownership can be transferred, for example by sale. A house cannot be moved, but its ownership can be sold. |
| External existence | It exists outside the person, like a house or a doctor’s service. Inner qualities such as a poet’s talent are not wealth in this classical sense. |
Q4. What are the kinds of economic resources?
- By origin: natural, human and man-made resources.
- By ownership: private, collective (public), national and international.
Q5. What are natural resources?
Resources provided by nature without human effort. Examples: land, water, climate, forests, rivers and minerals.
Q6. What are human resources?
The people and their abilities: health, skill, intelligence, education and honesty. In the classical view of wealth, personal qualities are not counted as wealth, because they cannot be transferred to another person. In modern economics, labour and skill are treated as a vital productive resource (human capital).
Q7. What are man-made resources?
Resources created by people using natural and human resources. Examples: houses, machinery, roads, schools and hospitals.
Q8. What are the factors of production?
| Factor | Meaning | Reward |
|---|---|---|
| Land | All natural resources | Rent |
| Labour | Physical and mental effort of people | Wages |
| Capital | Man-made goods used to produce more goods | Interest |
| Entrepreneur | Organizes the factors and takes the risk | Profit |
Ownership of Resources
Q9. What is private property?
Resources owned by individuals or private firms. Examples: a person’s car, house and furniture.
Q10. What is collective (public) property?
Property owned by the government or the community and used by the public. Examples: roads, parks, public hospitals, post offices and public libraries.
Q11. What is national property?
Resources that belong to the nation as a whole and are protected for all citizens. Examples: mineral resources, forests, national monuments and railways. A country’s total national wealth includes both private and collective property.
Q12. What is international property?
Resources that do not belong to any single country and can be used by all. Examples: the high seas, the oceans and the atmosphere. International rivers are shared by the countries they flow through.
Q13. What are the main kinds of natural resources by use?
- Agricultural resources
- Mineral resources
- Forest resources
- Animal (livestock and fish) resources
- Energy resources
- Water resources
Goods
Q14. What are goods?
In economics, goods are things that can satisfy human wants. Material goods are tangible, such as food, clothes, chairs and tables. Immaterial goods are intangible, such as services of a doctor or a teacher.
Q15. What are free goods?
Goods that are available without paying and are plentiful in nature, such as sunlight, air and rainwater. They have utility, but because they are not scarce they have no price.
Q16. What are economic goods?
Goods that are scarce relative to demand and must be paid for. Examples: food, houses, piped water, natural gas and clothes.
Q17. What are durable goods?
Goods that give service over a long period and are not used up at once, such as a refrigerator, a car, a house or furniture.
Q18. What are non-durable (single-use) goods?
Goods that are used up quickly, sometimes in one use, such as food, vegetables, fuel and soap. Clothes wear out faster than durable goods, so they are often treated as semi-durable.
Q19. What are intermediate goods?
Goods used to produce other goods and not bought for final use. Example: milk and sugar bought by a sweet maker, or steel bought by a car maker.
Q20. What are capital goods and consumer goods?
| Capital goods | Consumer goods |
|---|---|
| Man-made goods used to produce other goods | Goods used directly to satisfy the wants of consumers |
| Machinery, tools, factory buildings | Food, clothes, TVs, books |
Land is a factor of production, and raw materials are intermediate goods, so neither of them is a capital good.
Q21. What are transferable and non-transferable goods?
- Transferable goods: ownership can be transferred. Examples: house, land, car, books.
- Non-transferable goods: ownership cannot be transferred. Example: a person’s skill or health cannot be handed over to someone else.
Income, Consumption, Saving and Investment
Q22. What is income?
In economics, income is the money (or the value of goods and services) that a person or country receives in a period from using resources. For a household it can be wages, rent, interest or profit. For a country it is the total value of goods and services produced, which is its national income.
Q23. What is consumption?
Consumption is the use of goods and services to satisfy human wants. In everyday speech it means using something up, but in economics it covers every way goods and services give satisfaction, including enjoying a service like a haircut.
Q24. What is the difference between saving and investment?
Saving is the part of income that is not spent on current consumption. Example: from a monthly income of 10,000, a person spends 8,000 and saves 2,000.
Investment is spending on new capital goods, such as machinery, factories and buildings, that increases future production. Saving provides the funds, and investment is the use of those funds to add to the stock of capital.
| Point | Saving | Investment |
|---|---|---|
| Meaning | Income not consumed | Addition to capital goods |
| Done by | Households mainly | Firms mainly |
| Example | Putting 2,000 in a bank | A firm buying a new machine |
Q25. What is the relationship between income, consumption and saving?
Income is either consumed or saved: Y = C + S, so S = Y – C. Here S is saving, Y is income and C is consumption.
Example: If income is 50,000 and consumption is 40,000, then saving is 50,000 – 40,000 = 10,000.
Quick Revision Points
- An economic resource has utility, scarcity, transferability and external existence.
- Factors of production: land (rent), labour (wages), capital (interest), entrepreneur (profit).
- Free goods are not scarce. Economic goods are scarce and have a price.
- Capital goods help produce other goods. Raw materials are intermediate goods.
- S = Y – C. Saving finances investment.
Take the chapter quiz below, then continue to Concepts of Mathematical Economics.
