Page 135 - ABCTE Study Guide_Neat

number of employees must be cut back. High demand is most often seen with low supply, and high supply
is most often seen with low demand. Free market economies function mainly on supply and demand.

Specialization

Sometimes it is easier for one party to produce something than it is for another party to produce the same
thing. This simple concept is the basis for specialization and exchange, a system whose benefits include
greater overall efficiency for all parties and the ability of all parties to be utilized within a system to their
fullest potential. Take the following table as an example:

1 unit of clothing 1unit of food

Country X 6 hours 2 hours

Country Z 3 hours 9 hours

The table shows that Country X has the advantage in ease of food production, while Country Z has the
advantage in ease of production of clothing. Country X produces one unit of clothing in the same amount
of time that it takes to produce three units of food. Conversely, it takes Country Z three times as long to
produce a unit of food as it does to produce a unit of clothing. The simplest conclusion to draw from this
table is that if X focused most of its resources on producing food and Z most of its resources on clothing,
the two could trade their surpluses of their chief product. Both economies would flourish with less labor
loss than would occur without specialization and exchange.

Question

What is the basic concept behind the above clothing/food graph?

A Supply and demand

B Specialization and exchange

C Production and usage

D Economics and labor

Answer

The correct answer is B—the economically sound plan of specialization and exchange.

U.S. Economics

The U.S. economy is a multifaceted system, with each aspect playing a vital role. These systems include
private ownership of businesses, public and private banks, the stock market, labor unions, and
government agencies. Allowing businesses to be privately owned and operated, for instance, provides
choice to the consumer and competition within the market. The presence of both private and government