EMA1310 - Economics

Question 1

What is the main economic problem?

Answer 1

Scarcity; the need to allocate limited resources to meet unlimited wants.

Question 2

What are the factors of production?

Answer 2

Land, labour, capital and entrepreneurship.

Question 3

What does microeconomics study?

Answer 3

Individual markets, household and firm decisions, and consumer behaviour.

Question 4

What does macroeconomics focus on?

Answer 4

The economy as a whole, including economic growth, unemployment, and international trade.

Question 5

What are the 3 fundamental economic questions?

Answer 5

1. What to produce?
2. How to produce?
3. For whom to produce?

Question 6

What is the opportunity cost?

Answer 6

The value of the next best alternative that is forgone when making a choice.

Question 7

What does the Production Possibility Curve (PPC) illustrate?

Answer 7

The trade-offs and maximum production capacity of an economy.

Question 8

What does a point on the PPC represent?

Answer 8

Efficient use of resources.

Question 9

What does a point inside the PPC indicate?

Answer 9

Allocative inefficiency - resources are being underutilised.

Question 10

What is demand?

Answer 10

The quantity of goods/services that consumers are willing and able to buy at a given price, over a period of time.

Question 11

What is the Law of Demand?

Answer 11

When price increases, Qd decreases, and vice versa, ceteris paribus.

Question 12

What factors can shift the demand curve?

Answer 12

Changes in income, taxes, prices of substitutes/complements, advertising, and consumer preferences.

Question 13

What is supply?

Answer 13

The willingness and ability of producers to offer goods/services at a given price, over a period of time.

Question 14

What is the Law of supply?

Answer 14

As prices increase, Qs increases, and vice versa, ceteris paribus.

Question 15

What factors can shift the supply curve?

Answer 15

Changes in production costs, number of suppliers, and technology.

Question 16

What causes movements along the demand curve or supply curve?

Answer 16

Changes in price.

Question 17

What causes shifts in the demand or supply curves?

Answer 17

Changes in non-price determinants

Question 18

What happens when determinants other than price change?

Answer 18

It causes either an inwards or outwards shift in the supply or demand curve.
If the price changes, it causes a movement along the curve.

Question 19

What is the supply function?

Answer 19

The supply function shows the relationship between Qs and P in a mathematical way.
Qs = a +bP (a positive relationship between the two).

Question 20

What is the complex supply function?

Answer 20

The complex supply function accounts for price, taxes, and costs of production.

Qs = a + bP - Ct - dCp (Qs increases as price increases, but decreases as taxes and costs of production increase).

Question 21

What is price and output determination in a market?

Answer 21

The price mechanism determines the price and output that clears the market, found at the intersection for the demand and supply curves.

Question 22

What happens when supply exceeds demand (S>D)?

Answer 22

There is excess supply or a surplus.

Question 23

What happens when demand exceeds supply (D>S)?

Answer 23

There is excess demand or a shortage.

Question 24

What is consumer surplus?

Answer 24

Consumer surplus is the difference between the total amount consumers are willing to pay and the actual amount that they do pay for a good/service. It’s shown as the area under the demand curve and above the price.

Question 25

What is producer surplus?

Answer 25

Producer surplus is the difference between the actual price producers receive and the minimum acceptable price.

Question 26

When does maximum benefit to society occur?

Answer 26

Maximum benefit occurs when price and quantity are at the equilibrium point, optimising society’s welfare.

Question 27

What is a minimum price (Price floor)?

Answer 27

A minimum price is set to protects producer’s incomes, creates a surplus for times of need, and acts as minimum wage legislation.

Question 28

What is a maximum price (price ceiling)?

Answer 28

A maximum price ensures goods are on a first-come, first-serve basis, reduces production of already scarce resources, and can create a black market.