Chapter 1 - What Economics Is all about

Question 1

What is the basic fact of economic life?

Answer 1

Scarcity

Question 2

What is central to economics?

Answer 2

The relationship between unlimited wants & scarce resources

Question 3

What are wants?

Answer 3

Human desires

Question 4

What are needs?

Answer 4

Necessities like food & shelter

Question 5

What are demands?

Answer 5

There is a demand for goods / service only if those who want to purchase it have the necessary means to do so. Purchase power.

Question 6

Name the 3 types of resources - Factors of Production

Answer 6

1) natural resources - agri land, minerals, fishing
2) human resources - labour
3) man-made resources - machines

Question 7

What is opportunity cost of a choice?

Answer 7

The value of the forgone opportunity

Question 8

What does the production possibilities curve indicate?

Answer 8

The combination of any 2 goods / services that are attainable when community’s resources are fully & efficiently employed.

Question 9

What is the purpose of economic activity?

Answer 9

To satisfy human wants

Question 10

What are capital goods?

Answer 10

Goods that are not consumed but are used in the production of other goods

Question 11

What are the 3 different categories of consumer goods?

Answer 11

1) non-durable goods eg. food
2) semi-durable goods eg. Shoes, blankets
3) durable goods - last a few years eg. Furniture, cars

Question 12

What is economics essentially about?

Answer 12

• deals with the choices people have to make
• science of household management
• concerned with the ordinary business of life

Question 13

Economic goods

Answer 13

a good that is produced at a cost from scarce resources. Most goods are economic goods

Question 14

Free goods

Answer 14

A good that is not scarce & has therefore no price eg. Air, sunshine

Question 15

Homogeneous goods

Answer 15

Goods that are exactly alike. Few such goods in world. a Fine ounce gold is an example.

Question 16

Heterogeneous goods

Answer 16

Most goods - differentiated by brand. Eg. Bread, washing powder

Question 17

Ways to increase production

Answer 17

• improved technique
• new technique
• increased resources eg. workers /

Question 18

What does the possibilities curve illustrate?

Answer 18

Potential output
But does not indicate which of the possible combinations should be produced
Also hoe important it is to use scarce resources fully & efficiently

Question 19

Ceteris paribus

Answer 19

Latin for : “all things being equal”

Question 20

Economics is an empirical science, why?

Answer 20

Actual experiences are studied & measured

Question 21

What is a positive statement?

Answer 21

Objective statement of fact

Question 22

What is a normative statement?

Answer 22

Opinion or value judgement

Question 23

Post hoc ergo proper hoc, means?

Answer 23

Latin for: “after this, therefore because of this”

Question 24

Calculate % change between 2 figures

Eg. Change between 80 & 120 as % of 80

Answer 24

Subtract x from y
Decide by x
Multiply by 100

120 - 80=40
40 / 80 = 0,5
0,5 x 100 = 50

Question 25

Calculate given % of an amount

eg. 40% of 160

Answer 25

40% of 160

40 / 100 = 0,4
0,4 x 160 = 64

Question 26

Find an amount after a given % increase or decrease

Eg 150 increased by 20%

Answer 26

Eg 150 increased by 20%

20 / 100 = 0,2
0,2 + 1 = 1,2
1,2 x 150 = 180

Question 27

Why do economists disagree? Give 4 reasons.

Answer 27

• diff value judgements (what ought to be)
• not agree on facts
• bias
• diff views on how economy operates
• diff time perspectives (some short term focussed)

Question 28

What is the economic question?

Answer 28

To produce for:

1) what & how much?
2) how?
3) for who?

Question 29

What is the function of prices?

Answer 29

Allocation & rationing

Question 30

Men behind economic system?

Answer 30

Adam Smith
Karl Marx
John Keynes