IGCSE Economics Paper-2: Specimen Questions with Answers 25 - 26 of 100

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Managerial Economics deals with practical business-problems relating to production, pricing, and sales.

Question 25 (4 of 5 Based on Passage)

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Short Answer▾

Explain the mechanism to solve the problem of resource allocation.

Explanation

The basic economic problem of an economic society is harnessing the scarce resources available in such a way as to satisfy as many wants as possible. Thus, economic problem is essentially that of optimal allocation of resources. It is basically relating to the necessity of choosing what, how and for whom to produce and how to achieve economic growth and maximize welfare. Hence, the main problem faced by an economic society is to chart a course of action to utilize the limited means in manner previously decided upon.

There are three main mechanism adopted for solving the economic problems these are:

  • Custom
  • Central Direction or command
  • Market price mechanism
Economic Problems

Question 26 (5 of 5 Based on Passage)

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Short Answer▾

How decision regarding resource allocation is made?

Explanation

The basic business problems where managerial decision making is based on economic understanding

  • What to produce
  • How much to produce
  • How to produce
  • Where to produce

All these problems in gist involve allocation and utilization of productive resources such as land, labor, and capital, enterprise, including finance or money in a modern economy. Five MS: Men, Machines, Materials, Management, and money are important elements of input production decision making and these are scarce means need to be economized in use. Optimal utilization of these resources is taught by economics.

Decision About Allocation of Resources is Made in Three Stages

  • Allocate decision: What types of goods and services to be produced from the available productive resources which are scarce
  • Productive decision: How much to be produced and how to combine these resources for desired quantity and pattern of goods and services.
  • Distributive decision: To whom these products and services are to be distributed/marketed or supplied.
The Basic Economic Problem

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