Micro test 1

Question 1

What is a model

Answer 1

A simplified representation of reality and it often includes assumptions

Question 2

Why do economists use models

Answer 2

To understand how people behave and make predictions about the future

Question 3

Define Ceteris Paribus

Answer 3

All other things being equal
or
a broad term that defines what variables are changing or what variables are remaining the same in a given situation.

Question 4

What is a positive statement

Answer 4

A statement which can be tested
e.g Higher interest rated will reduce house pricing

Question 5

What is a Normative statement

Answer 5

A statement which can’t be tested
e.g. Pollution is the most serious economic problem

Question 6

Define Basic economic Problem

Answer 6

Resources are scarce and there is not enough for everyone

Question 7

What is a need

Answer 7

A need is a necessity and a requirement for Survival
e.g. Health, food and water

Question 8

What is a want

Answer 8

A want is something which is desirable
e.g. Phones, cars and money

Question 9

Define opportunity Cost

Answer 9

The cost of missing out on the next best alternative.

Question 10

Define Free goods

Answer 10

Goods which have no opportunity cost (Unlimited amount)

Question 11

Define Economic goods

Answer 11

Goods which are scarce

Question 12

Name the 4 factors of production

Answer 12

-Land
-Capital
-Labour
-Enterprise

Question 13

Explain what Land means in the factors of production and what is the reward for it?

Answer 13

Natural resources or the physical land itself
e.g forrest, desert and the sea
Reward: Rent

Question 14

Explain what Capital means in the factors of production and what is the reward for it?

Answer 14

The Physical resource and the man-made aid which is used to produce consumer goods (Machinery)
Reward: Interest

Question 15

Explain what Labour means in the factors of production and what is the reward for it?

Answer 15

Human input into the production process
e.g. Farmers, workers
Reward: Wages

Question 16

Explain what Enterprise means in the factors of production and what is the reward for it?

Answer 16

The entrepreneur who brings all the factors of production together
e.g. Elon Musk, Steve Jobs
Reward: Profit

Question 17

Define Production possibility Frontier (PPF)

Answer 17

A Curve that shows the maximum combination of goods and services that can be produced in a given time, using limited resources

Question 18

Define Productive effeciency

Answer 18

When it is Impossible to produce more of one good without producing less of another

Question 19

At what point in the curve is there no opportunity cost?

Answer 19

Any where on the inside (Point not touching the line)

Question 20

What can cause the PPF to shift to the right?

Answer 20

When the country increases the quantity or quality of the factors of production therefore increasing productive capacity

Question 21

What happens if new machinery or the development of an axis in the PPF increases

Answer 21

The PPF shifts at a certain angle

Question 22

Define Specialisation

Answer 22

When individuals, firms or countries concentrate on the production of one task or product

Question 23

Why are economists interested in the concept of specialisation

Answer 23

It enables is to allocate our scarce resources better

Question 24

Define Specialisation by product

Answer 24

A company makes only one thing they are good at making. e.g. BMW only makes cars

Question 25

Define specialisation by process

Answer 25

Each person specialises on one part of a product. e.g. Macdonald’s workers

Question 26

Name the Levels specialisation can take place on

Answer 26

National Level
Firm Level
Individual Level

Question 27

What are the Advantages of Specialisation

Answer 27

+
More efficient > More output using fewer input > More money

Happy people > Low prices > more money

More profits reinvested > Better quality of Goods and services

Lower wages helps the firms

Question 28

What are the disadvantages of specialisation

Answer 28

-
Repetitive > Productivity slows down

People become de-skilled > eventually technology takes over

It creates Interdependence

Question 29

What are the 4 things money has to have

Answer 29

-Store of value
-Medium of exchange
-Unit of account
-Standard of deferred payment

Question 30

What is meant by store of value when referring to money

Answer 30

It can be used for future transactions without fluctuations in its monetary worth

Question 31

What is meant by Medium of Exchange when referring to money

Answer 31

It needs to be accepted by the other person

Question 32

What is meant by Unit of account when referring to money

Answer 32

It tells us how much a note or coin is worth

Question 33

What is meant by Standard of deferred Payment when referring to money

Answer 33

Money is used to express debt

Question 34

What are the 3 Economic Agents and what are their roles

Answer 34

Consumers - Maximise Utility/satisfaction
Producers - Maximise profits
Government - Taxation, Control, Economic Growth and Stability