Microeconomics Unit 1 Flashcards
What is economics?
The study of resource allocation
What is the basic economic problem?
Scarcity. The fact that humans have unlimited wants and needs but only finite resources.
What is the difference between needs and wants?
Needs are required to sustain human life wheras wants add to the utility of human life.
What is a normative statement in economics?
A statement that is an opinion, which cannot be proved or disproved by the facts.
What is a positive statement in economics?
A statement that can be proved or disproved by the facts.
What is the difference between a free good and an economic good?
A free good has zero opportunity cost in supply whereas an economic good has an opportunity cost in supply. An example of a free good is the air.
What is the difference between macroeconomics and microeconomics?
Microeconomics is the study of markets, firms and individuals; whereas macroeconomics is the study of the economy as a whole.
What is meant by utility in economics?
Utility in economics is another word for satisfaction or happiness.
What are the three questions of resource allocation?
What to produce, how to produce it, for whom production takes place.
What are the four factors of production?
Land, labour, capital, enterprise.
What are the rewards to the four factors of production?
Land receives rent. Labour receives wages. Capital receives interest. Entrepreneurship receives profit.
What is opportunity cost in economics?
The benefit foregone/lost as a result of not choosing the next best alternative.
What is meant by rationality in economics?
An economic agent acting rationally would be able to: (1) rank all choices in terms of utility, (2) would never change their mind (consistent choices), (3) would always attempt to maximise personal utility.
What are the 3 different economic systems?
Free market, mixed, planned/command
How are resources is allocated in the three different economic systems?
In a free market economy all resources are allocated by markets. In a planned/command economy all resources are allocated by the government. In a mixed economy some resources are allocated by the government and some by markets.
