Basic Problems of an Economy — Practice Quiz

Increase in real per capita income over time

Economic growth means the average income per person increases over a sustained period, adjusted for inflation (real income). This indicates improved standard of living. Option A is wrong - population growth alone doesn't mean economic growth. Option C is incorrect as money supply changes don't necessarily reflect growth. Option D is wrong as government spending is just one component of economic activity.

Distribution of income and goods

The problem of 'For whom to produce' deals with how the produced goods and services are distributed among people in society. This depends on income distribution - those with higher incomes can purchase more goods. Option A relates to 'How to produce'. Options C and D are not fundamental economic problems but operational decisions.

Limited resources relative to unlimited wants

Economic scarcity refers to the fundamental condition where human wants exceed the available resources to satisfy them. It's not just about money but all productive resources like land, labour, capital. Option A is too narrow. Option C is wrong as scarcity exists even with advanced technology. Option D is incorrect as scarcity affects all economies regardless of population size.

Relative availability of resources

The choice between labour-intensive and capital-intensive techniques depends mainly on the relative availability and cost of different resources. Countries with abundant labour use labour-intensive methods, while those with abundant capital use capital-intensive methods. Options A, C, and D are factors that may influence the choice but are not the primary determinant of production technique selection.