Chapter 1: Economic issues and concepts

Question 1

Factors of production

Answer 1

1. Land
2. Labour
3. Capital
4. Entrepreneurship

Question 2

What is economics?

Answer 2

Economics is the study of the use of scarce resources to satisfy unlimited human wants in the most efficient way

Question 3

Goods

Answer 3

Tangible products, such as cars or shoes

Question 4

Services

Answer 4

Intangible products, such as legal services and education

Question 5

Production

Answer 5

The act of making goods or services

Question 6

Scarcity

Answer 6

It implies that choices must be made, and making choices implies the existence of costs

Question 7

Opportunity cost

Answer 7

The value of the next best alternative that is forgone when one alternative is chosen

Question 8

Opportunity cost formula

Answer 8

Question 9

The concept of scarcity, choice and opportunity cost can be illustrated by a negative curve known as ________

Answer 9

Production Possibility Boundary (PPB)

Question 10

A​ straight-line production possibilities boundary​ (PPB) indicates that the opportunity cost of each good is _____

Answer 10

Constant

Question 11

A​ concave production possibilities boundary​ (PPB) indicates that the opportunity cost of each good is _____

Answer 11

increasing

Question 12

What is the difference between microeconomics and​ macroeconomics?

Answer 12

Microeconomics studies the allocation of resources as it is affected by the workings of the price​ system, while macroeconomics studies the determination of economic aggregates

Question 13

Resource allocation

Answer 13

The allocation of an economy’s scarce resources among alternative uses

Question 14

Economic growth

Answer 14

It shifts the PPB outwards. A result of bigger budget or technological improvements

Question 15

Suppose the country has a​ 10-year civil war that destroys much of its infrastructure

Answer 15

Question 16

Suppose a small country produces only food and clothing. A new agricultural technology is then introduced that doubles the amount of food that can be produced per year

Answer 16

Question 17

Suppose a small country produces only food and clothing. An earthquake destroys many of the clothing​ factories, but the ability to produce food is unaffected

Answer 17

Question 18

The country admits approximately 250,000 immigrants each​ year, many of whom join the labour force

Answer 18

Question 19

What are the four basic questions that must be answered in all​ economies?

Answer 19

1. What is produced and How?
2. What is consumed and by Whom?
3. Why are resources sometimes idle?
4. Is productive capacity growing?

Question 20

A point on a production possibilities boundary shows an _____

Answer 20

efficient combination of goods

Question 21

the types of decision-makers in any economy

Answer 21

1. Producers
2. Consumers
3. Government

Question 22

Marginal decision

Answer 22

Firms and consumers who are trying to maximise usually need to weigh the costs and benefits of their decisions at the margin.

Question 23

The circular flow of income and expenditure

Answer 23

Question 24

Specialisation of labour

Answer 24

The specialisation of individual workers in the production of particular goods or services

Question 25

Division of labour

Answer 25

The breaking up of a production process into a series of specialised tasks, each done by a different worker

Question 26

Barter

Answer 26

An economic system in which goods and services are traded directly for other goods and services

The double coincidence of wants may not exist

Question 27

Types of economic systems

Answer 27

1. Traditional economy: based on tradition, custom, and habit
2. Command economy: most decisions are made by a central planning authority
3. Free-market: most economic decisions are made by private households and firms
4. Mixed economy: some economic decisions are made by firms and households and some by the government

Question 28

The main characteristics of market economies that produce spontaneous​ self-organization include

Answer 28

market prices and quantities