Economics 1.1

Question 1

opportunity cost

Answer 1

the value of the next best alternative forgone that has been sacrificed making an economic decision

Question 2

free good

Answer 2

refers to goods such as air/seawater that are not considered to be scarce, thus they have no opportunity cost

Question 3

market

Answer 3

an arrangement where buyers and sellers can interact and make economic transactions

Question 4

free market economy

Answer 4

an economy where production processes are privately owned. market forces answer the 3 economic questions, and price rationing is used predominantly

Question 5

planned economy

Answer 5

an economy where production processes are state-owned, as well as FOPs (land, labour). The state determines the 3 Q’s and such an economy is characterised by the lack or absence of markets

Question 6

mixed economy

Answer 6

Has elements of a planned economy and elements of a free market economy. Most countries in the world have mixed economies. THey combine command approach and market approach for resource allocation , ownership etc

Question 7

PPC

Answer 7

Is a curve that shows the maximum combinations of 2 goods and services that can be produced using limited resources, if all resources in a country is being used efficiently w/o any wastage

Question 8

actual growth

Answer 8

When real GDP (output) increases over a period of time. It takes place when existing resources are being used better - more efficiently, and unemployment decreases.

Question 9

growth in production possibilities

Answer 9

Growth in production possibilities occurs when there is an increase in quantity of resources, increase in quality of resources and technological improvements → outwards shift of the PPC

Question 10

circular flow of income

Answer 10

simplified illustration that shows the flow of income and expenditures in an economy

Shows the flow of resources from consumers (households) to firms, and the flow of products from firms to consumers, as well as money flows consisting of consumers’ income arising from the sale of their resources and firms’ revenues arising from the sale of their products

Question 11

households

Answer 11

groups of individuals in an economy that share living accommodation, pool incomes and jointly decide on which sets of goods/services to consume

Question 12

firms

Answer 12

productive units that transform inputs (FOPs) into outputs, usually aiming for profit maximisation

Question 13

Foreign sector

Answer 13

in an open economy, this term refers to exports and imports

Question 14

leakages

Answer 14

It refers to the withdrawal from the income flow of funds corresponding to savings, taxes or imports

Question 15

injections

Answer 15

Refers to the entry into income flow of funds corresponding to investment, government spending or exports. In the model, these refer to spending on domestic output that does not originate from households, and thus includes investment spending by firms, government expenditures and exports.

Question 16

resource allocation

Answer 16

Assigning available resources, or factors or production, to specific uses chosen among many possible and competing alternatives; involves answering the ‘what to produce’ and ‘how to produce’ basic economic
questions.

Question 17

distribution of income

Answer 17

Concerned with how much of an economy’s total income different individuals or different groups in the population receive, and involves answering the ‘for whom’ basic economic question.

Question 18

government intervention

Answer 18

The practice of government to intervene (interfere) in
markets, preventing the free functioning of the market, usually for the purpose of
achieving particular economic or social objectives.