Microeconomics LS1-LS6

Question 1

What is economics?

Answer 1

Is a social science which studies the economy.

Question 2

What is an economy?

Answer 2

All the goods and services produced in an area.

Question 3

What are the factors of production?

Answer 3

Land
Labour
Capital
Enterprise

Question 4

What is automation?

Answer 4

Uses capital machinery and new technology to replace human labour

Question 5

What does ceteris paribus mean?

Answer 5

Assuming all variables within the economy remain constant.

Question 6

What is the difference between empirical and theoretical models?

Answer 6

Theoretical- based on theories

Empirical- based on data

Question 7

What is the economic problem?

Answer 7

How to use the available scarce resources to satisfy the consumers infinite needs and wants as effectively as possible.

Question 8

What are the 3 questions?

Answer 8

What to produce?
How to produce it?
Who to produce it for?

Question 9

Who are the economic agents?

Answer 9

Governments, consumers, firms

Question 10

What are economic agents?

Answer 10

Groups that participate within the economy.

Question 11

What is opportunity cost?

Answer 11

The cost of the next best alternative forgone.

Question 12

What is PPF?

Answer 12

A PPF shows the maximum potential output of a combination of two goods and services an economy can achieve when all resources are fully employed.

Question 13

What is economic growth?

Answer 13

Economic growth is an increase in production of goods and services within an economy (outward shift)

Question 14

What causes an outward shift?

Answer 14

• higher productivity
• increase in stock of capital and labour supply
• innovation and invention of new products

Question 15

Causes of an inward shift.

Answer 15

• natural disasters
• large scale of her migration out of country
• long-term fall in productivity of labour

Question 16

What are consumer goods?

Answer 16

Goods used by people to satisfy their infinite needs and wants.

Question 17

What are capital goods?

Answer 17

Goods which are used to produce other goods and services.

Question 18

What are positive statements?

Answer 18

Can be proven true or false.

Objective

Question 19

What are normative statements?

Answer 19

Based on opinions

Subjective

Question 20

What is value judgement?

Answer 20

Can agree or disagree.

Question 21

What is specialisation?

Answer 21

Occurs when an individual or firm concentrated production on a limited range of good or services.

Question 22

What is division of labour?

Answer 22

Specialisation of workers on specific tasks within the production process.

Question 23

What does increased productivity lead to?

Answer 23

• higher living standards
• higher quality and quantity of goods and services
• more efficient use of resources

Question 24

Two methods of trading.

Answer 24

Bartering and money

Question 25

What are the 4 functions of money?

Answer 25

1) Medium of exchange- something commonly accepted in exchange for goods
2) measure of value- price of something reveals its value
3) store of value- value maintained and kept for long time
4) method of differed payment- allows debt to be created

Question 26

What is the price mechanism?

Answer 26

Process by which markets allocate resources.

Question 27

What is a command economy?

Answer 27

Economy in which resources are allocated solely by the state

Question 28

What is a mixed economy?

Answer 28

Economy by which resources allocated by the state and price mechanism (free market & supply and demand)

Question 29

What is a free market economy?

Answer 29

Economy in which resources are solely allocated by the price mechanism.

Question 30

Difference between the public sector and private sector.

Answer 30

Public sector- part of economy controlled by the gov

Private sector- part of the economy NOT controlled by the gov

Question 31

What is there in both mixed and free market economies?

Answer 31

Innovation and quality.

This is because both competition and profit are motive are present.

Question 32

Why might free and market economies have a less equitable distribution of income and wealth?

Answer 32

Because the owners of capital and land accumulate wealth over time and pass privilege onto children.