Question

What are the three economic questions that every society must answer? How are they typically answered in a mixed economy like the United States? Provide examples and explain your answer.

Economics assumes that people act rationally. What does this mean? Why is this assumption made? Provide examples and explain your answer.

What is the Law of Demand? Explain the difference between a change in demand and a change in the quantity demanded. Provide an example from the gasoline market.

Other than price, what are the determinants of supply? Provide three examples from the consumer market for gasoline.

What does market equilibrium mean? Provide two examples of how market equilibrium in the consumer market for gasoline market could change.

Answer 1

The three questions every economy society facing are

1, What to produce and in what quantities?

2, How to produce?

3, For whom to produce?

◆ US is considered as a mixed economy because it is a mixture of capitalism along with government intervention. For solving the first question America decide whether to produce food or arms and amenities. And what quantity of decided item. According to the situation exist in the country they decide the product and its quantity.

◆ The second question deals with the techniques of production. There are mainly two techniques of production one is labour intensive and other the other one is capital intensive. If there is plenty of labor it can choose labour intensive technique and if there is lack of labour then it can choose capital intensive method of production.

◆ Third question deals with the final consumer of goods and service. People demand goods and services according to their ability to pay, which was mainly based on their income. So there is personal distribution of income which shows how the national income is distributed among the people. And the next is functional distribution of income which means the distribution of rent, wages, interest and profit among the owners of land, labour, capital and Organisation.