ECONOMIC PROBLEM- MICROECONOMICS- 01,02,03,

Question 1

Normative Statement

Answer 1

A statement that includes a value judgement on desirability and cannot be proved wrong just by looking at evidence

Opinion, judgment

Question 2

Positive Statement

Answer 2

A statement that can be scientifically tested to determine correctness

Question 3

Purpose of economic activity

Answer 3

Satisfy unlimited needs and wants
N-neccessary for survival, food, clothing, warmth or shelter
W-desirable, fashionable clothing, trending items

Question 4

Economic welfare

Answer 4

EW- overall wellbeing of an indvidual, group or society within an economy

Question 5

Production

Answer 5

Process or set of processes that converts inputs into output of goods

Question 6

Capital goods

Answer 6

A good which is used in the production of other goods or services

Machines, technology

Question 7

Consumer goods

Answer 7

A good which is consumed by households to satisfy needs and wants

Question 8

Factors of production

Answer 8

Resources or inputs into the production process
-Land
-Labour
-Capital
-Enterprise (risk taking)

Question 9

Resources

Answer 9

Finite- scarce, nonrenewbale resources that will eventually be all used up
Renewable- regenerative materials that can be replaced or regrown

Question 10

Fundamental economic problem

Answer 10

How best to utilise and allocate resources among competing uses in an economy with unlimited needs and wants, to improve and maximise economic welfare

Question 11

Scarcity

Answer 11

Derived from the fact that people have unlimited needs and wants but resources needed to meet them are limited
-People want to consume more goods and services than an economy is able to produce

Question 12

Opportunity cost

Answer 12

Value of aleternatives given up to pursue alternative course of action

Question 13

Rational behaviour

Answer 13

Assumes that individuals always make decisions that provide them with the highest amount of personal utility, acting in self interest, caring only for private benefit
-Therefore often forgoing the best or second best alternatives

Question 14

Production Possibility Frontier (PPF)

Point meanings

Answer 14

Curve depicting the various combinations of two products that can be produced when all availible resources are eficiently employed
-Point on- efficient
-Inside- inefficient (-ve output gap)
-Outside- not yet achievable (+ve output gap)

Question 15

Economic growth

Answer 15

Increase in the potential level of real output the economy can produce over a period of time
-Shown by an outward shift of the PPF (LRAS)

Question 16

Full employment

Answer 16

FE- when all who are able and willing to work are employed
-All points on a PPF show full emplyment of resources

Question 17

Productive efficiency

Answer 17

PE-when it is impossible to produce more of one item without producing less of another, max output (economy)
-When avg. total cost of production is minimised (firm)

Question 18

Allocative efficiency

Answer 18

AE- occurs when the availible economic resources are used to produce the combination of goods and services that best match consumer needs and wants

Question 19

Consumer bias

RAASH

Answer 19

Rules of thumb- simple useful tools making decision easier
Anchoring- placing too much emphasis on one piece of information
Availibility bias- judgements made on probability (leads to overestimation)
Social norms- behaviour influenced by a group
Habitual behaviour- repeated actions

Question 20

Policies and BE

Choice architecture

Answer 20

Default options
Framing
Nudges
Restricted choice
Mandated choice