Microeconomics Topic 1 YR1

Question 1

What does a movement along the PPF illustrate?

Answer 1

It illustrates opportunity cost, the value of the next best alternative forgone in production choices

Question 2

What signifies economic growth in relation to the PPF?

Answer 2

An outward shift of the PPF indicates economic growth due to increased resources or improved efficiency.

Question 3

What can cause the PPF to shift inward?

Answer 3

Resource depletion or natural disasters can cause an inward shift of the PPF, indicating reduced productive capacity.

Question 4

How does limited funding for public healthcare exemplify scarcity?

Answer 4

Limited funding forces governments to make trade-offs in healthcare services, illustrating resource allocation challenges.

Question 5

What trade-off does scarcity create between environmental conservation and industrial expansion?

Answer 5

Scarcity necessitates choosing between preserving natural resources and expanding industrial activities, affecting economic growth.

Question 6

How does specialization benefit countries economically?

Answer 6

Specialization allows countries to focus on goods where they have a comparative advantage, enhancing efficiency and productivity

Question 7

Give an example of a country that specializes in car manufacturing.

Answer 7

Germany is known for its expertise in car manufacturing.

Question 8

Which country specializes in coffee production?

Answer 8

Brazil specializes in coffee production, leveraging its comparative advantage.

Question 9

What is the definition of economics?

Answer 9

Economics studies how scarce resources are allocated to satisfy infinite wants

Question 10

What is the primary goal of economics?

Answer 10

To address the economics problem of scarcity by making critical choices.

Question 11

What are the three critical choices in economic activity?

Answer 11

What to produce, how to produce, and for whom to produce.

Question 12

What does the concept of scarcity mean?

Answer 12

Scarcity highlights the while resources are finite, human wants are infinite.

Question 13

What is opportunity cost?

Answer 13

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

Question 14

Provide an example of opportunity cost for an individual.

Answer 14

Choosing to spend money on a holiday instead of saving for retirement.

Question 15

How might a firm experience opportunity cost?

Answer 15

A company may choose to produce smartphones instead of tablets.

Question 16

What opportunity cost might a government face?

Answer 16

Deciding to fund healthcare instead of defense.

Question 17

Why is understanding opportunity cost important?

Answer 17

It influences decision-making and efficiency of resource allocation.

Question 18

What are positive economic statements?

Answer 18

Factual, testable statements that are value-free and objective.

Question 19

Provide an example of a positive statement.

Answer 19

An increase in the minimum wage will lead to higher unemployment among young workers.

Question 20

What are normative economic statements?

Answer 20

Statements based on value judgements and opinions that cannot be tested scientifically.

Question 21

Provide an example of a normative statement.

Answer 21

The government should increase the minimum wage to reduce income inequality.

Question 22

What are the factors of production?

Answer 22

Resources used to produce goods and services.

Question 23

What does the term ‘land’ refer to in economics?

Answer 23

All natural resources such as forests, oil, and minerals.

Question 24

What is the payment for land called?

Answer 24

Rent.

Question 25

What does 'labour' encompass in production?

Answer 25

Human effort used in production influenced by education, training, and health.

Question 26

What is the payment for labour known as?

Answer 26

Wages.

Question 27

What is meant by 'capital' in the context of production?

Answer 27

Man-made aids to production, such as machinery and tools

Question 28

What is the payment for capital termed as?

Answer 28

Interest

Question 29

What is the definition of wages and interest in economics?

Answer 29

Wages are payments made to labour; interest is payment for the use of capital.

Question 30

What role do entrepreneurs play in the economy?

Answer 30

Entrepreneurs organize production factors and take risks, with profit as their reward.

Question 31

What is the concept of specialization in economic terms?

Answer 31

Specialization occurs when entities focus on specific goods or services for greater efficiency.

Question 32

How does division of labour improve productivity?

Answer 32

Division of labour assigns distinct tasks, increasing productivity and efficiency in production.

Question 33

List some advantages of the division of labour.

Answer 33

Advantages include higher productivity, skilled workers, and time savings from task switching.

Question 34

What are the disadvantages associated with specialization and division of labour?

Answer 34

Disadvantages include worker boredom, reliance on specialists, and potential structural unemployment.

Question 35

What function does money serve as a medium of exchange?

Answer 35

Money facilitates trade, eliminating the need for direct barter and the double coincidence of wants.

Question 36

List the primary functions of money.

Answer 36

Functions include medium of exchange, unit of account, store value, and standard of deferred payment.

Question 37

Why are assumptions important in economic models?

Answer 37

Assumptions simplify reality, focusing on key variables while using ceteris paribus to maintain constant factors.

Question 38

What distinguishes economic goods from free goods?

Answer 38

Economic goods are scarce and have an opportunity cost, while free goods are abundant with no opportunity cost.

Question 39

What does the Production Possibility Frontier (PPF) illustrate?

Answer 39

The PPF shows maximum output combinations of two goods with available resources.

Question 40

What do movements along the PPF indicate?

Answer 40

Movements along the PPF represent opportunity costs in production choices.

Question 41

What does an outward shift of the PPF signify?

Answer 41

An outward shift indicates economic growth, increased resources, or improved efficiency.

Question 42

What can cause and inward shift in the PPF?

Answer 42

An inward shift may result from resource depletion or natural disasters affecting production capacity.