Chapter 1 The foundations of economics

Question 1

Define microeconomics

Answer 1

Branch of economics that examines the behaviour of individual decision-making units in the economy; is concerned with consumer and firm behaviour and how their interactions in markets determine prices

Question 2

Define macroeconomics

Answer 2

Branch of economics that examines the economy as a whole by use of aggregates, which are wholes or collections of many individual units

Question 3

Define scarcity

Answer 3

Refers to the idea that resources are insufficient to satisfy unlimited human needs and wants.

Question 4

Define efficiency

Answer 4

Refers to making the best possible use of scarce resources to avoid resource waste.

Question 5

Define economic well-being

Answer 5

Refers to level of prosperity, economic satisfaction and standards of living among members of society

Question 6

Define sustainability

Answer 6

Refers to maintaining the ability of the environment and the economy to continue to produce and satisfy needs and wants into the future

Question 7

Define interdependence

Answer 7

Refers to the idea that economic decision-makers interact with and depend on each other

Question 8

Define government intervention

Answer 8

government becomes involved with the workings of market

Question 9

Define Factors of Production

Answer 9

All resources, or inputs (land, capital, labour, enterprise) used to produce goods and services

Question 10

Define economics

Answer 10

The study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants

Question 11

Define land (FoP)

Answer 11

Factor of production which includes all natural resources: land and agricultural land, as well as everything that is under/above the land

Question 12

Define labour (FoP)

Answer 12

Factor of production which includes the physical and mental effort that people contribute to the production of goods and services

Question 13

Define capital (FoP)

Answer 13

Factor of production which itself has been produced used in the production of goods and services

Question 14

Define entrepreneurship (FoP)

Answer 14

Factor of production involving a special human skill that includes the ability to innovate by developing new ways of doing things, to take business risks and to seek new opportunities for opening and running a business

Entrepreneurship organises the other 3 factors of production and takes on the risks of success/failure of a business

Question 15

Define opportunity cost

Answer 15

value of the next best alternative that must be given up or sacrificed in order to obtain something else

Question 16

Define free good

Answer 16

any good that is not scarce and therefore has a zero opportunity cost

Question 17

Define economic good

Answer 17

Any good that is scarce, either because it is a naturally occurring scarce resource or because it is produced by scarce resources