Question

1. who makes economic decisions in a traditional economy?
2. how does a command economy differ from a market economy?
3. what is equilibrium in a supply and demand graph?
4. name three non - price determinants of demand.
5. what is a sole proprietorship?
6. what is limited liability and why is it important?
7. which market structure has only one seller?
8. what does gdp measure?
9. what is inflation?
10. what is a recession?

Answer:

To answer these questions, we'll go through each one:

Question 7: Who makes economic decisions in a traditional economy?

In a traditional economy, economic decisions are made by custom, tradition, and the community's elders or leaders based on long - held practices (e.g., in a tribal society, decisions about what to produce, how to produce, and for whom to produce are based on the traditions passed down through generations, like a family - based farming community where the head of the family or the village elder decides on crop planting based on ancestral methods).

Question 8: How does a command economy differ from a market economy?

• Command Economy: The government (central planning authority) makes all major economic decisions. It decides what to produce, how to produce (e.g., state - owned factories with government - mandated production methods), and for whom to produce (through centralized distribution plans). There is little to no private ownership of major industries.
• Market Economy: Decisions are driven by the forces of supply and demand in the market. Private individuals and firms decide what to produce (based on profit motives), how to produce (to minimize costs and maximize efficiency), and for whom to produce (those who can afford the goods and services). Prices are determined by the interaction of buyers and sellers in the market, and there is a large degree of private ownership.

Question 9: What is equilibrium in a supply and demand graph?

In a supply - demand graph, equilibrium is the point where the quantity of a good or service that producers are willing to supply (quantity supplied) is equal to the quantity that consumers are willing to buy (quantity demanded). Graphically, it is the intersection point of the supply curve and the demand curve. At this price (equilibrium price) and quantity (equilibrium quantity), there is no surplus (excess supply) or shortage (excess demand) in the market.

Question 10: Name three non - price determinants of demand.

1. Income: If a consumer's income increases (for a normal good), the demand for that good will increase (e.g., as people's income rises, they may demand more luxury cars). If income decreases, the demand for normal goods decreases. For inferior goods, the opposite is true (e.g., as income rises, demand for cheap, low - quality food may decrease).
2. Tastes and Preferences: If a product becomes more popular due to trends, advertising, or cultural shifts, demand increases. For example, if a new fashion trend makes a certain style of clothing popular, the demand for that style will rise.
3. Price of Related Goods:

• Substitutes: If the price of a substitute good (e.g., tea and coffee) increases, the demand for the other substitute will increase. If coffee prices rise, people may buy more tea.
• Complements: If the price of a complementary good (e.g., printers and ink cartridges) increases, the demand for the other good in the complement pair will decrease. If printer prices rise, people may buy fewer ink cartridges.

Question 11: What is a sole proprietorship?

A sole proprietorship is a business owned and run by a single individual. The owner has complete control over the business, receives all the profits (but also bears all the losses), and is personally liable for the business's debts. For example, a local barber shop run by one person, where that person makes all the business decisions, keeps all the earnings, and is responsible if the shop owes money to suppliers.

Question 12: What is limited liability and why is it important?

• Limited Liability: It is a legal concept where the owners (shareholders in a corporation, members in a limited liability company) of a business are only liable for the debts and obligations of the business up to the amount of money they have invested in the business. Their personal assets (like their home, personal savings) are not at risk for the business's debts beyond their investment.
• Importance: It encourages investment. People are more willing to invest in businesses (especially corporations) because they know their personal wealth is protected. It also allows businesses to raise more capital as investors feel more secure putting their money into the business.

Question 13: Which market structure has only one seller?

A monopoly is a market structure with only one seller (or a single firm that controls the entire market for a good or service). The monopolist has significant control over the price of the product since there are no close substitutes and no other firms competing in the market. For example, a local utility company that is the only provider of electricity in a city.

Question 14: What does GDP measure?

Gross Domestic Product (GDP) measures the total value of all final goods and services produced within a country's borders in a specific time period (usually a year or a quarter). It can be calculated using the expenditure approach (GDP = Consumption + Investment+ Government Spending + Net Exports, where Net Exports = Exports - Imports) or the income approach. It is a key indicator of a country's economic performance and the size of its economy.

Question 15: What is inflation?

Inflation is a sustained increase in the general price level of goods and services in an economy over time. When inflation occurs, each unit of currency buys fewer goods and services. It is typically measured using the Consumer Price Index (CPI), which tracks the price changes of a basket of commonly - consumed goods and services, or the Producer Price Index (PPI) for goods at the production level. For example, if the price of a loaf of bread increases from $1 to $1.20 over a year, and this kind of price increase is widespread across many goods and services, it indicates inflation.

Question 16: What is a recession?

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months. It is typically visible in real GDP (adjusted for inflation), real income, employment, industrial production, and wholesale - retail sales. A common definition is a period of at least two consecutive quarters of negative economic growth (negative real GDP growth). During a recession, businesses may cut back on production, unemployment rises, and consumer spending often decreases.