Question 35 - Reading: Level A Practice Test for the TABE Test

Which of these is most likely the author’s purpose for writing the passage provided?

Economics is the branch of social science that studies the production, distribution, and consumption of goods and services. It has been defined as “the study of scarcity and choice” and is basically about the choices people make to get what they want. Economics studies the relationship between groups and individuals and what they are willing to give up to obtain the products or services they want or need.

The word comes from the ancient Greek words “oikos” or “household,” and “nomos” or “law or custom.” Economics literally means “household management.” Households, or groups, like companies, offer their goods or services in exchange for another good or service they want in return. This give and take, buy and sell, creates the system of economy between individuals, businesses, governments, and nations to make, share, and purchase products and services.

There are a number of general principles that all economic systems rely on to run smoothly. One is that all people must decide between their options. If a person has money to burn, the choices may be easier or less consequential to make. For example, one person may choose to spend their money on buying a fancy car, while another person may choose to spend their money on rent to keep their family housed. When a person gives up something, like money, to get a good, or product, they also give up other things that they could have gotten instead. This means that the true cost of something is what you give up to get it. This includes money, and the economic benefits (“utility”) that you didn’t get because you can no longer buy something else. People choose between options based on the rewards (“incentives”) or consequences (“disincentives”) they expect from each option. The more rewards offered by a particular option, the more people will choose it.

Another principle is that the prices of goods or services do not fully show the cost or benefit to society. For example, air pollution is bad for society, and education is good for society. The government can put a tax on things that are bad for society to disincentivize people from choosing those options. It can also support items that are good for society and give people incentives for choosing those options.

The standard of living of a country depends on the skills to produce goods and services. Productivity is the amount of the produced goods divided by the total number of working hours. Ideally, this wants to be the highest number of goods possible in the fewest number of working hours. But there must be a balance between the cost of the good, for example, and the wages of the workers who produce that good.

Adapted from

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