5.0 Introduction to Economics

Question 1

What is a need?

Answer 1

Something essential for survival, limited

Question 2

What is a want?

Answer 2

Not essential for survival, unlimited

Question 3

What is economics?

Answer 3

study of how society chooses to allocate scare land, labour, resources to production of goods and services to satisfy population’s needs and unlimited wants.

Question 4

What is an economic resource or ‘factors of production’?

Answer 4

Inputs used in production of goods and services, include land, labour and capital resources.

Question 5

What is land? Define

Answer 5

Any natural resources provided by nature used in process of production.

Question 6

What is labour?

Answer 6

Mental and physical capacity of workers to produce goods and services.

Question 7

What is capital?

Answer 7

Man-made tools, machinery and equipment used in production of goods and services.

Question 8

What is scarcity?

Answer 8

Fundamental challenge of meeting unlimited human wants and needs with limited land, labour and capital resources.

Question 9

Why are things scarce?

Answer 9

They have alternative uses, using them for one purpose means they cannot be used for another.

Question 10

What are the three ideas that form the foundation of economics?

Answer 10

Scarcity, choice, opportunity cost.

Question 11

What is a choice?

Answer 11

Economic decision made between competing alternatives.

Question 12

Why is choice a central concept in economics?

Answer 12

Reflects the scarcity of resources and the need to make trade-offs between different uses of resources.

Question 13

What do firms make choices about?

Answer 13

What inputs/resources to use, prices to charge based on costs and market conditions.

Question 14

What does the government make choices about?

Answer 14

Allocation of public resources, regulation of economy, implementation of public policies based on social and political goals.

Question 15

What is opportunity cost?

Answer 15

The loss of vale of the next best forgone alternative whenever economic decision made.

Question 16

How can opportunity cost be expressed?

Answer 16

Monetary value and resource use, non-monetary costs and benefits (time, effort, enjoyment)

Question 17

What assumptions does the Production Possibilities Model (PPM) make?

Answer 17

1. Economy can only produce two different goods or services
2. All scarce resources are being fully utilised.

Question 18

What does the production possibility frontier (PPF) display?

Answer 18

Scarcity, choice and opportunity cost.
Each good is either on the X or Y axis to show all combinations the economy can produce with all their resources.

Question 19

Why will all choices on PPF incur opportunity cost?

Answer 19

All incur opportunity cost because of the problem of scarcity.

Question 20

What is efficiency?

Answer 20

The optimal use of resources in production of goods and services with no wastage.

Question 21

What does it mean if a company is efficient in producing goods and services?

Answer 21

Producing the maximum possible output within its given scarce resources.

Question 22

What does any point along the PPF (line) represent?

Answer 22

Economy being efficient with their resource use.

Question 23

What does a point within the PPF represent (inside the line)?

Answer 23

Underutilisation of scares resources and inefficient resource use.

Question 24

What does a point over/above the PPF?

Answer 24

Impossible to produce as this point due to scarcity.

Question 25

When does a change in an economy’s potential output or production possibilities (efficiency) occur?

Answer 25

Change in quantity or quality factors of production (scarcity).

Question 26

What are three factors that increase the quality of resources?

Answer 26

• More years of education (labour)
• GMO technology increases crop yields (land)
• New technology improves capital equipment (capital)

Question 27

What are three factors that increase the quantity of resources?

Answer 27

• Increasing birth rates (labour)
• Finding new mineral deposits (land)
• Manufacturing more capital goods (capital)

Question 28

When quality and quantity increase, what happens to PPF?

Answer 28

It shifts outwards, and makes previously unattainable output points possible.