Question

This Question has four parts:    

Explain the following

A. What are the three fundamental Questions in Economics

B. Equilibrium Price

C. Income effect

D. Mixed economy

Answer 1

A. Three fundamental questions of economy.

1. What to produce - This question means selection of goods and services to produced and the quantity to be produced of each selected commodity.

2 How to produce - This question refers to selction of technique to be used for production of goods and services.

3. For whom to produce - This question refers to selection of the category of people who will ultimately consume the goods, whether to produce goods for more poor and less rich or more rich and less poor.

B. Equilibrium price is a situation where forces of supply and demand are balanced. In other words we can say that we determine equilibrium price where demand and supply curve intersect.

C. Income effect is the effect on real income when price of the goods and services changes it may be positive or negative. If the price of commodity reduces then consumer can purchase more in the same income level. If the price of commodity rises then consumer purchase less in the same income level.

D. Mixed economy is the economy which consists both the private and government owned entities and share resources, income of the country. India, US, are some example of mixed economy.