Ch.1 Basic Economic Concepts

Question 1

What is economics?

Answer 1

Economics is a social science that studies, analyses and predicts human behaviour. Economics studies how human beings allocate limited resources to satisfy unlimited wants.

Question 2

What is scarcity?

Answer 2

Scarcity is the situation in which the limited resources are insufficient to satisfy our unlimited wants. Scarcity of resources is the constraints on our decision making.

Question 3

What concept is scarcity in?

Answer 3

Scarcity is a relative concept. We need to compare the availability of resources against people’s wants in order to determine whether there is scarcity.

Question 4

What is microeconomics?

Answer 4

Microeconomics analyses the behaviours of individuals and firms.

Question 5

What is macroeconomics?

Answer 5

Macroeconomics analyses the operations of the economy as a whole.

Question 6

Is there scarcity in one-man economy?

Answer 6

There is still scarcity but there is no competition.

Question 7

What does scarcity implies?

Answer 7

Scarcity implies to choices and choices implies cost. Besides, scarcity also implies competition and competition implies to discrimination.

Question 8

What does people need to make when scarcity exists?

Answer 8

Choices

Question 9

What is the definition of competition?

Answer 9

The process of separating winners from losers.

Question 10

What does price competition mean?

Answer 10

Those who are willing and able to pay the market price can get the resources or goods.

Question 11

What does non-price competition mean?

Answer 11

People compete for resources or goods on the basis of factors other than price like first come first served.

Question 12

What is opportunity cost?

Answer 12

It is the highest-valued option forgone.

Question 13

What is full cost?

Answer 13

Full cost means money cost plus non monetary cost.

Question 14

What is sunk cost?

Answer 14

The past expenditures which is non recoverable and do not represent any options to be forgone

Question 15

How does the value of chosen option change the opportunity cost?

Answer 15

The change in value of chosen option does not change the cost.

Question 16

What does interest mean?

Answer 16

It means cost of earlier availability of resources (to borrower) or compensation received for deferred consumption of the resources (to lender).

Question 17

Does interest exist without money?

Answer 17

Yes, it can exist without money like barter economy or banking system or risk.

Question 18

What are the factors of an economic good?

Answer 18

1.Involves production cost which requires scarce resources having alternatives uses.
2.More of it preferred .
3. It implies scarcity.
4. People compete for it.

Question 19

What are the factors of a free good?

Answer 19

1.It does not have production cost.
2.More of it is not preferred depends on the situation.
3.Nobody is willing to pay a price for it.
4.There is no implication of scarcity.

Question 20

What are the two basic economic units?

Answer 20

A firm is the basic unit of production. A household is the basic unit of consumption.

Question 21

What are the two markets?

Answer 21

Product market is a market for exchanging final goods and services between the household and the firm. Factor market is a market for exchanging factors of production between the household and the firm.

Question 22

What is the real flow?

Answer 22

Final goods and services flow from the firm to the household, while factors of production flow from the household to the firm.

Question 23

What is the money flow?

Answer 23

The money that the firm pays for the factors of production is the cost of production to the firm, which becomes the factor income of the household.

Question 24

What does positive statement mean?

Answer 24

It means no value judgement, they are testable and refutable.

Question 25

What does normative statement mean?

Answer 25

It means judge statement, they are non-testable and non-refutable.

Question 26

What are the terms for normative statements?

Answer 26

should, ought to, the best, good