1.1 + 1.2 What is economics?

Question 1

economics

Answer 1

social science that studies how human beings use their limited resources to satisfy their infinite needs and wants and how they improve their economic well-being.

Question 2

microeconomics

Answer 2

concerned with the individual parts of the economy; it deals with individual units within the economy such as firms, consumers or markets

Question 3

macroeconomics

Answer 3

concerned with the economy as whole; deals with aggregates such as the overall level of unemployment, total output of an economy and its growth through time and the average price level

Question 4

scarcity

Answer 4

excess of human wants over what can actually be produced to fulfill these wants

Question 5

choices

Answer 5

since resources are scarce, choices must be made - society has to choose between goods and services to produce and how much of it they want

Question 6

efficiency

Answer 6

scare resources must be used in the best way possible to produce the combinations of goods and services that are optimum for society. this is know as allocative efficiency

Question 7

equity

Answer 7

fairness: inequality in the distribution of wealth and income

Question 8

economic well being

Answer 8

living standards enjoyed by the members of an economy and includes the dimensions of: security, meeting basic needs, make economic choices and maintain all of this over time

Question 9

sustainability

Answer 9

ability of the present generation to meet its need without compromising the ability of future generations to meet their own needs

Question 10

change

Answer 10

economics is not static: so the study focuses not only on the level of a variable but its change from one situation to another

Question 11

interdependence

Answer 11

an action of an agent will impact other agents

Question 12

intervention

Answer 12

government involvement in the workings of markets despite markets being considered as the best mechanism to organize economic activity

Question 13

Factos of production

Answer 13

Land, Labour, Capital, Entrepreneurship

Question 14

Land

Answer 14

inputs into productions provided by nature

Question 15

Labour

Answer 15

human input (both physical and mental) into production

Question 16

Capital

Answer 16

manufactured resources: produced means of productions

Question 17

entrepreneurship

Answer 17

willingness and ability that some individuals have to take risks and to manage the other three factors of production

Question 18

opportunity cost

Answer 18

what you lost: alternative foregone of a choice

Question 19

economic goods vs free goods

Answer 19

economic: require scare resources to be sacrificed
free: zero opportunity cost of production

Question 20

three basic questions

Answer 20

what to produce?
how to produce?
for whom?

Question 21

assumptions behind a PPC

Answer 21

Each economy produces only two goods.
The goods are produced using combinations of the available resources.
At each moment in time the amount of resources that the country has is fixed.
The state of technology at each moment in time is fixed.
The points on the curve mean that all resources in the economy are fully employed.

Question 22

At any point inside the PPC

Answer 22

not all the factors of production in the economy are being used (there is unemployment of resources) or they are being used inefficiently.

Question 23

points on the PPC

Answer 23

where there is economic efficiency and no resources are being unemployed. Any point on the PPC shows maximum potential output.

Question 24

points outside the PPC are

Answer 24

unatainable

Question 25

actual growth

Answer 25

situation in which a point inside the PCC curve moved more outside (still inside the curve but closer to the line)

The country is now producing more of good X and good Y than before, using more of its scarce resources.

Question 26

potential growth

Answer 26

If a change in the economy caused an increase in the maximum amount of goods that can be produced, known as the potential output, the PPC would shift outwards

Question 27

The potential output of a country can be increased (causing the PPC to shift outwards) by one or a combination of the following factors:

Answer 27

An increase in the quantity of factors of production
An increase in the quality of factors of production
An improvement in technology

Question 28

The PPC is usually a curve and not a straight line because

Answer 28

the opportunity cost is not normally constant as you transfer resources from the production of one good to the other. This is because not all of the factors of production are equally well suited to the production of both goods.

Question 29

model of closed economy

Answer 29

Question 30

The assumptions of closed economy

Answer 30

Households own all the factors of production.
Firms produce all goods and services.
There is no government.
There are no other countries to trade with (it is a closed economy).
There are no banks or commercial institutions.

Question 31

circular flow of income

Answer 31

Question 32

Leakages

Answer 32

flows of money that leave the economy as savings, taxes and imports. They are the part of domestic households’ income that is not spent on domestic goods and services.

Question 33

injections

Answer 33

expenditures on domestic goods and services not originating from the household

Question 34

If leakages are bigger than injections

Answer 34

the money that flows out is greater than the amount that flows in, so the national income will fall as there will be less income circulating and the economy will shrink.

Question 35

if injections are bigger than leakages

Answer 35

national income increases

Question 36

if injections are equal to leakages

Answer 36

national income does not change

Question 37

what is a positive statement

Answer 37

a statement that is a fact and can be proven right or wrong

Question 39

what is a normative statement

Answer 39

a point of view: value of judgement

Question 39

ceteris paribus

Answer 39

statement of “all else constant”

Question 39

An example of a normative economic statement would be

Answer 39

‘Extreme poverty should be eradicated’ or ‘Health care should be provided free to everyone’.

Question 39

example of a positive economic statement would be

Answer 39

‘If the government increases spending, unemployment will fall’ or ‘Brazil’s inflation rate in 2016 was 9 per cent’.