Chapter 1- The Economic Problem

Question 0

What are economic resources?

Answer 0

Items used in all types if production.

Question 1

What is the economic problem?

Answer 1

The problem of having unlimited wants but limited resources (scarcity) to satisfy these wants

Question 2

What are the 3 types of economic resources?

Answer 2

1. Natural Resources
2. Human Resources
3. Capital Resources

Question 3

What are the three types of Resource Incomes and which resource do that correspond with?

Answer 3

1. Rent (Natural Resources)
2. Interest (Capital Resources)
3. Wages/Profit (Human Resources)

Question 4

What are the two branches of economics?

Answer 4

Microeconomics and Macroeconomics

Question 5

What is Microeconomics?

Answer 5

focusing on specific aspects of economics such as consumer demand/supply, and the role of big businesses

Question 6

What is Macroeconomics?

Answer 6

Focusing on broader matters relating to economic performance as a whole, such as recession, inflation, and unemployment.

Question 7

What are Economic Models?

Answer 7

Laws, principles, or theories

➡️generalizations/simplifications of economic realities used to help people understand workings of the economy

Question 8

What is “Ceteris Paribus”?

Answer 8

the assumption that “all other things remain the same” (hold everything constant)

Question 9

What is the difference between Positive and Normative economics?

Answer 9

Positive is fact while normative is opinion

Question 10

What is “Utility”?

Answer 10

The satisfaction gained from any action

Question 11

What is the “self interest motive”?

Answer 11

people will act to maximize their own welfare

Question 12

What is opportunity cost?

Answer 12

the utility that could have been gained by choosing an action’s best alternative

Question 13

What is the “production possibilities curve”?

Answer 13

a graph that shows the various combinations of output that the economy can produce given the available resources

Question 14

Why does the PPC bow out to the right?

Answer 14

Because of the “law of increasing opportunity costs”

Question 15

What is the “law of increasing opportunity costs”?

Answer 15

the law states that: as long as more than one item is produced, its opportunity cost in terms of the other item increases (curve gets steeper)

Question 16

What is Economic Growth?

Answer 16

an increase in the total output of goods &/or services due to a rise in the amount of available resources or an improvement in technology

Question 17

what is the economic system?

Answer 17

the organization of an economy, represents a country’s distinct set of social customs, political institutions, and economic practices

Question 18

What are the 3 Basic Economic Questions?

Answer 18

1) what to produce
2) How to produce
3) For whom to produce

Question 19

What are the types of economies?

Answer 19

Traditional; Market; Product; Resource;

Command; Modern Mixed; Traditional Mixed

Question 20

Describe a Traditional Economy

Answer 20

economic decisions depend on custom, resistant to change due to tight social customs, division of labour between men and women.

Question 21

Describe a Market Economy

Answer 21

economic decisions based on private ownership and use of markets, individuals free to pursue their own self-interest, often referred to as Capitalism, gov’t only upholds the legal system and maintains public security.

Question 22

Describe a Product Market

Answer 22

consumer products are traded here

Question 23

describe a Resource Market

Answer 23

economic resources are traded here

Question 24

What are the benefits of a Market Economy?

Answer 24

- customer sovereignty - Prices - Encourages Innovation

Question 25

Drawbacks of a Market Economy?

Answer 25

- Income Distribution - Market Problems - Instability

Question 26

Describe a Command Economy

Answer 26

economic system based on public ownership and central planning, opposite of a market economy, gov't is central planners

Question 27

Benefits of a Command Economy?

Answer 27

- Income Distribution | - Economic Growth

Question 28

Drawbacks of a Command Economy,

Answer 28

- Planning Difficulties - Inefficiencies - Lack of Freedom

Question 29

Describe a Modern Mixed Economy

Answer 29

economic system that combines the use of markets and a significant gov't presence, very popular, role of gov't varies in each country, unclear distinction between public/private sector

Question 30

Describe a Traditional Mixed Economy

Answer 30

economic system that has a traditional sector and a modern sector, rare

Question 31

What are the 7 Economic Goals?

Answer 31

1. Economic Efficiency 2. Income Equity 3, Price Stability 4. Full Employment 5. Viable Balance of Payments 6. Economic Growth 7. Environmental Sustainability

Question 32

What is Economic Efficiency?

Answer 32

getting highest benefit from an economy's scarce resources; employing scarce resources in a way that maximizes utility

Question 33

What is Income Equity?

Answer 33

when a county's total output is distributed fairly; begs the question "what is fair?"; defining/satisfying the goal of income equity is controversial

Question 34

What is Price Stability?

Answer 34

gov't tries to minimize inflation; single dollar falls in purchasing power; goods cost more but incomes don't always rise

Question 35

What is Full Employment?

Answer 35

gov't tries to minimize involuntary unemployment; unemployment rate is the % of a labour force thats involuntary unemployed; higher unemployment rate means a lower total output than what could be produced

Question 36

What is Viable Balance of Payments?

Answer 36

balance-of-payments accounts us a summary of all transactions between Cad. and foreigners that involves exchanging Cad. $ for other currencies; imports/exports and financial flow in/out of the country needs to be more or less evenly matched

Question 37

Why is Economic Growth an Economic Goal?

Answer 37

helps raise the average standard of living for Cad; Cad's in 2000s were better off than in 1920s

Question 38

What is Environmental Sustainability?

Answer 38

quality of our physical environment can be sustained w/o sig. harm; to minimize damage economic activity must be adjusted

Question 39

What are Complementary Goals?

Answer 39

when reaching 1 goal makes the next easier to succeed; eg. full employment and economic growth

Question 40

What are Conflicting Goals?

Answer 40

when reaching 1 goal makes the next harder to succeed; 1 goal is achieved at the cost of another; can mean that a country's resources are being used less efficient than before; eg. price stability and full employment, income equity and economic efficiency

Question 41

What is inflation?

Answer 41

inflation is a rise in the general level of prices

Question 42

What do Central Planners do?

Answer 42

Central planners decide what should be produced/how it should be produced and how it should be distributed