Definition

Question 1

Economic efficiency

Answer 1

may be defined in two distinct ways which can be illustrated in terms of a production possibility curve or transformation curve.

Question 2

The production possibility curve

Answer 2

shows all the possible maximum outputs that a country can produce given its existing resources and technology in a given period of time. It follows that all points on the curve itself represent points at which society’s resources are fully employed.

Question 3

allocative efficiency

Answer 3

refers to efficient distribution of productive resources amongst alternative uses so as to produce the optimal mix of output. The optimal output mix arises through consumers responding to prices which reflect the true costs of production, or marginal costs.

Question 4

Relative scarcity

Answer 4

characteristically refers to the universal relationship between limited resources and unlimited wants representative of the human condition.

Question 5

Available resources or factors of production

Answer 5

are thus scarce relative to the various ends to which they can be devoted. This necessarily implies economising in both the allocation and use of scarce resources.

Question 6

microeconomics

Answer 6

studies the interrelationships between individual units (e.g. households and firms) and attempts to explain and predict observable characteristics of market or exchange behaviour on the basis of a priori axiomatic assumptions concerning the nature of human behaviour in exchange relationships.

Question 7

change in quantity demanded

Answer 7

is always caused by a change in its own price.

Question 8

change in demand

Answer 8

is caused by a change in a factor different than price.

• Changes in disposable income:
• Changes in the price of substitutes

Question 9

demand elasticities

Answer 9

measure the number of options open to consumers to shift into or out of consumption of particular goods