1.1 Scarcity, choice and opportunity cost

Question 1

scarcity definition

Answer 1

the fact that the world’s resources (factors of production) are finite and have to be used to produce goods and services to satisfy a society’s unlimited needs and wants

Question 2

opportunity cost definition

Answer 2

the value of the next best alternative forgone/ that must be sacrificed to obtain something else

Question 3

choice definition

Answer 3

because resources are scarce, societies are forced to make choices about how resources are used

Question 4

the three basic economic questions

Answer 4

1. what to produce
2. how to produce it
3. whom to produce it for

Question 5

correlation between scarcity, choice, and opportunity cost

Answer 5

as a result of scarcity –> choices have to be made, choice implies –> opportunity cost

Question 6

what is economics?

Answer 6

the study of the allocation of resources

Question 7

what is the fundamental economic problem?

Answer 7

scarcity

Question 8

what do you try to avoid in choice?

Answer 8

making waste (choosing the option that will produce less/ be less effective)

Question 9

resource allocation definition

Answer 9

assigning available resources (factors of production) to specific uses chosen among many possible alternatives which involves answering the three basic economic questions

Question 10

types of resource allocation

Answer 10

• reallocation
  -overallocation
• underallocation

Question 11

examples of mechanism by which resources get allocated

Answer 11

• markets
• governments (e.g. through provision of welfare)
• interest rates (i.e. central banking)
• international trade

Question 12

microeconomics definition

Answer 12

the study of how firms and individuals make decisions and interact in specific markets, and the way these markets function, including the central role that prices play in allocating resources in a given market

Question 13

macroeconomics definition

Answer 13

the study of how economies perform at a system level (e.g. national economy level) and how their performance can be measured and improved. as well as how economies interact with other economies

Question 14

free goods definition

Answer 14

goods that are freely available from nature and have no opportunity cost

Question 15

economics goods definition

Answer 15

goods that are made using factors of production and thus have an opportunity cost