1.1 - What is economics

Question 1

What is the definition of economics?

Answer 1

The study of how to make the best possible use of scarce resources to satisfy unlimited human wants and needs

Question 2

Why is economics a social science?

Answer 2

Because it relies on society’s behaviour, such as when looking to satisfy their needs and wants

Question 3

What is microeconomics?

Answer 3

The behaviour of individual economic agents and their interactions within the markets.
- The study of how their interactions and decisions influence the allocation of resources.

Question 4

What is Macroeconomics?

Answer 4

The study of the overall performance of the economy as a whole. It analyses the aggregate behaviour of consumers, producers, and the government and trends of the economy.

Question 5

What are needs?

Answer 5

are the necessities of life

Question 6

What are wants?

Answer 6

the goods and services that people desire beyond satisfying their needs

Question 7

What are the 4 factors of production?

Answer 7

1. Land (natural resources)
2. Labour ( workforce)
3. Capital (machinery, equipment)
4. Enterprise

Question 8

What is the economic definition of ‘scarcity’?

Answer 8

where humans have unlimited collective needs and wants, yet only limited productive resources

Question 9

What are the economic agents and what do they want?

Answer 9

1. Consumers - maximise their satisfaction
2. Workers - maximise their wages & conditions of employment
3. Firms - maximise profit
4. Government - maximise the welfare of their citizens

Question 10

What is the economic definition of ‘sustainability’?

Answer 10

Meeting the current needs of society while allowing there to be future resources

Question 11

What are trade-offs?

Answer 11

The choice that can come at the expense of the natural environment

Question 12

What is the economic definition of ‘opportunity cost’?

Answer 12

The next best alternative foregone when an economic decision is made

Question 13

What are free goods?

Answer 13

Goods that are not considered scarce and thus do not have an opportunity cost
- has no price tag

Question 14

What are economic goods?

Answer 14

Any good that is scarce and therefore has an opportunity cost

Question 15

What is the 3 basic economic questions?

Answer 15

1. What and how much to produce?
2. How to produce it?
3. For whom to produce?

Question 16

What is resource allocation?

Answer 16

refers to assigning available resources (factors of production) to specific uses chosen from many competing alternatives.

Question 17

Features of a planned economy:

Answer 17

• Government owns resources
• Government decides where resources will be allocated

Question 18

Features of a market economy:

Answer 18

• Resources are owned by individuals
• Resources are allocated via the forces of supply and demand

Question 19

Assumptions when constructing the PPC:

Answer 19

1. A nation can only produce 2 types of output
2. Scarce resources are “fully employed” and the most efficient production techniques are used

Question 20

How does a PPC curve show scarcity, trade-offs, and opportunity cost?

Answer 20

1. Scarcity - cannot produce anything beyond the curve
2. trade-offs: If you want to start producing another item you will have to give up one of the 2 chosen outputs
3. Opp. Cost: shows the best option foregone when an economic decision is made

Question 21

The PPC graph can expand when:

Answer 21

1. Larger quantity of resources
2. Better quality of resources
3. Improved Technology

Question 22

The PPC graph can shrink when:

Answer 22

1. Factory gets destroyed
2. Decreased quality and quantity of resources

Question 23

What is productive efficiency?

Answer 23

goods and services are produced at the lowest possible cost and an economy cannot produce more of one good without sacrificing the production of another

Question 24

What is allocative efficiency?

Answer 24

resources are distributed that maximises the overall benefit to society. the production of goods and services best satisfies consumers’ needs & wants

Question 25

What is unemployment of resources?

Answer 25

economy produces output below the maximum possible output that could be produced

Question 26

What is Unobtainable output?

Answer 26

There are insufficient resources to produce the desired output as there is not sufficient quantity or quality of resources.

Question 27

When does constant opportunity cost happen?

Answer 27

When the factors of production are equally well-suited to the production of both goods

Question 28

Actual Output

Answer 28

when real output increases through time and is a result of more productive use of existing resources
- lower unemployment
- greater productive efficiency

Question 29

Potential Output

Answer 29

occurs when there is an increase in production possibilities of an economy
- larger quantity of resources
- better quality of resources
- improved technology