Basic Concepts of Economics — Practice Quiz

A B.A. degree

Step 1: For something to be 'wealth' in economics, it must possess four characteristics: Utility, Scarcity, Transferability, and Externality. Step 2: A B.A. degree has Utility (it is useful) and Scarcity (not everyone has it), BUT it lacks Transferability — you cannot transfer your degree to another person. Step 3: Since a B.A. degree fails the transferability test, it is NOT wealth in economics. Step 4: Why others are wrong — A DDA flat has all four characteristics (utility, scarcity, transferability, externality) → it IS wealth. A rare painting has all four characteristics → it IS wealth. Co

Scarcity

Step 1: Value in economics has three main attributes — Utility, Scarcity, and Transferability. Step 2: Scarcity means a commodity must be limited in supply relative to its demand for it to command value. Step 3: Classic example: Air is extremely useful (high utility) but it is available in unlimited quantity, so it has NO exchange value (no price in normal conditions). Step 4: Why others are wrong — Utility means the ability to satisfy wants (necessary but not sufficient for value). Transferability means the commodity can change hands (also necessary for value). Externality is a characteristic

Necessaries, Comforts, and Luxuries

Step 1: The standard economic classification of human wants is into three groups. Step 2: Necessaries — goods essential for survival and efficiency (food, cloth, shelter, milk, fruits). These are further divided into necessaries of life, necessaries of efficiency, and conventional necessaries. Step 3: Comforts — goods that do not increase efficiency but whose absence decreases efficiency (furniture, electric fan, refrigerator, washing machine). Step 4: Luxuries — goods used for a lavish lifestyle (costly cars, gold ornaments, expensive clothes, large houses). Step 5: Why others are wrong — 'Se

Labour

Step 1: Factors of production are classified as active or passive based on their role in production. Step 2: Labour is described as an ACTIVE factor of production. It is labour which, in cooperation with land and capital, actually makes production happen. Without labour, land and capital cannot produce anything. Step 3: Why others are wrong — Land is a PASSIVE factor; it cannot produce anything on its own and requires labour and capital. Capital is also a PASSIVE factor; it becomes effective only when used by labour. Organisation (entrepreneurship) coordinates the other factors but is a coordi