basic economic ideas and resource allocation

Question 1

scarcity

Answer 1

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Question 2

opportunity cost

Answer 2

next best alternative foregone when an economic decision is made

Question 3

positive statements

Answer 3

true/false

Question 4

normative statements

Answer 4

based on opinions

Question 5

ceteris paribus

Answer 5

assumption or condition of economic theory suggesting that only one variable can be changed and the other variables are unchanged

Question 6

short run

Answer 6

at least one factor of production is fixed
- business can make small changes
- impact from monetary/fiscal policies most evident

Question 7

long run

Answer 7

all factors of productions can be varied
- companies can change their production capactiy, technology
- full effect of policies observed here

Question 8

specialisation

Answer 8

Occurs when people and businesses concentrate on what they are best at

Question 9

division of labour

Answer 9

manufacturing process split into sequence of individual tasks

Question 10

Advantages of specialisation

Answer 10

• reduced training costs
• higher wages
• increased efficiency and productivity

Question 11

Disadvantages of specialisation

Answer 11

• absence can affect whole production line
• boredom
• may face shortage of workers

Question 12

advantages of division of labour

Answer 12

• quick and cheap
• increased productivity and quality
• lower unit costs

Question 13

disadvantages of division of labour

Answer 13

• loss of motivation
• structural unemployment
• identical + standardised = lack of variety

Question 14

market economy

Answer 14

resources allocated by forces of demand and supply through price mechanism, decisions on how resources are allocated are made by the firms

Question 15

advantages of market economy

Answer 15

• consumer sovereignty
• more variety of goods and services
• higher efficiency due to profit motive

Question 16

disadvantages of market economy

Answer 16

• underproduction of merit goods
• income inequality
• negative effects on externalities
• market failures

Question 17

planned economy

Answer 17

government has central role and will make all the decisions and is responsible for the allocation of resources

Question 18

advantages of planned economy

Answer 18

• high income distribution
• government provides public goods, subsidies
• decisions taken in national interest for macroeconomic objectives

Question 19

disadvantages of planned economy

Answer 19

• lack of innovation and profit motive
• limited customer choices
• black markets
• corruption risks

Question 20

mixed economy

Answer 20

both the public and private sector will have a part to play in the allocation of resources

Question 21

advantages of mixed economy

Answer 21

• consumer choice and freedom
• social welfare
• public good and services

Question 22

disadvantages of mixed economy

Answer 22

• inconsistent policies
• public debt
• some inequality

Question 23

production possibilities curves

Answer 23

maximum level of output an economy can achieve given its current resources, factors of production and state of technology

Question 24

concave ppc shape

Answer 24

increasing opportunity cost- factors of production not perfectly substituted to produce both products

Question 25

straight line ppc curve

Answer 25

constant opportunity cost- factors of production perfectly substituted to produce both products

Question 26

point below ppc curve

Answer 26

inefficient use of resources and below full capacity

Question 27

point above ppc curve

Answer 27

not possible as economy does not have resources that required to achieve this level of output

Question 28

free goods

Answer 28

goods that are not scarce and have zero opportunity cost does not require factors of production to produce

Question 28

private goods

Answer 28

goods that are connected by one person and not available to anyone else

Question 29

public goods

Answer 29

- non-excludable: not possible to stop anyone from using a good - non-rival: consumption by one person does not reduce consumption by someone else

Question 30

free rider

Answer 30

someone who benefits from the use of a public good without having to pay for it

Question 31

quasi-public goods

Answer 31

good that has some but not the full characteristics of a public good

Question 32

merit goods

Answer 32

goods which is desirable for consumers but under-provided and under-consumed due to information failure

Question 33

demerit goods

Answer 33

goods which is undesirable for consumers but over-provided and over-consumed due to information failure

Question 34

information failure

Answer 34

situation where consumers dont have full or complete information when making decisions

Question 35

how to increase consumption of merit goods

Answer 35

- infomercials - information booklets - subsidy not enough - direct provision -> accessible to consumers

Question 36

how to decrease consumption of demerit goods

Answer 36

- fill information gaps - educate consumers - put taxes so less affordable - ban completely - laws and regulations