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

Passage

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▾

State the role of managerial economics in decision making.

Explanation

The role of managerial economics is as follows:

  • Managerial economics is an evolutionary science; it is a journey with continuing understanding and application of economic knowledge- theories, models, concepts, and categories emerging in business.
  • Decision making is the curricular aspect of dealing with business problems. Decision becomes essential since business problem would usually imply basic question: What is the alternative course of action?
  • For making an optimum economic choice as an aid to better decision making. It provides an understanding of the framework and economic tools needed by managers/businessman in business decision making.
  • It seeks to establish rules and principles to facilitate the attainment of desired economic goals of management.
The Basic Business Problems

Question 26 (5 of 5 Based on Passage)

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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

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