Mid sem test

Question 1

Scarcity

Answer 1

A good or service is scarce, there is not enough of it to satisfy everyone at zero price

Question 2

Economics

Answer 2

The study of the systems society uses to allocate scarce resources to the production of goods and services and then to distribute them to consumers

Question 3

How people make principles

Answer 3

People make tradeoffs, opportunity cost, rational people think at margin, people respond to incentives

Question 4

How people interact with key economic principles

Answer 4

Trade makes everyone better off, markets good way to organise economic activity, govt can improve market outcomes in certain occasions

Question 5

Macro lessons

Answer 5

Countries standard of living depends on its ability to produce goods, price rises when govt prints money which leads to inflation, society faces a short term trade off between inflation and unemployment

Question 6

Positive statement

Answer 6

Claims that attempt to describe the world as it is, can gather info and be tested by looking at data

Question 6

Positive statement

Answer 6

Claims that attempt to describe the world as it is, can gather info and be tested by looking at data

Question 7

Normative statement

Answer 7

Claims the attempt to describe how the world should be and is a value judgement

Question 8

PPF

Answer 8

A graph that shows various combinations of output that the economy can possibly produce, given the available resources and technology

Question 9

What does the PPF curve show

Answer 9

The tradeoff as scarcity

Question 10

NZ standard of living ranking in the 1950’s

Answer 10

3rd

Question 11

NZ standard of living ranking in 1978

Answer 11

22nd

Question 12

Reasoning behind NZ decrease in standard of living

Answer 12

Britain seeking economic future in Europe and increase in oil prices then increasing COP

Question 13

NZ regulated economy in 1980’s

Answer 13

Permission to truck goods on railway upwards of 150miles, regulated monopolies, ownership of industries

Question 14

Significance of fourth labour government elected in 1984

Answer 14

Introduction of economic reforms

Question 15

Economic reforms

Answer 15

Removing barriers to trade, state owned assets were sold, tax structure less progressive and tight monetary policy introduced to reduce inflation

Question 16

The market system

Answer 16

It is driven by individual decisions as what to produce is decided by the willingness and ability of individual consumers to pay for each good.

Question 17

Price signals

Answer 17

These decide what to produce such as if demand for a good increases, the price will then increase, which increases supply and then decreases demand

Question 18

Relative price

Answer 18

Price of one good divided by another

Question 19

Invisible hand

Answer 19

Price changes allocate resources, operates as the outcome of self interest

Question 20

Questions answered in market economy

Answer 20

How to produce = individual business owners
Whom to produce = individual consumers

Question 21

Gains from trade

Answer 21

Individuals differ in OC of performing particular tasks where potential gains can be made which leaves room for specialisation

Question 22

Why trade

Answer 22

Misallocated endowments of goods, gains from larger scale production, variation in resource productivity ( CA )

Question 23

Absolute advantage - AA

Answer 23

AA if takes fewer hours to produce a good or perform a task so is therefore more productive

Question 24

Opportunity costs

Answer 24

OC is the comparative advantage held by the person with the lowest OC of production

Question 25

Specialisation

Question 26

Arguments in favour of trade

Answer 26

Increases competition, prevents high monopoly prices, domestic produces efficiently, allows domestic firms to access larger markets

Question 27

Arguments against trade

Answer 27

Loose jobs where exports are better, have to move and retrain in new jobs

Question 28

Perfectly competitive market

Answer 28

Many suppliers and buyers who have negligible affect on the price

Question 29

Characteristics of a perfectly competitive market

Answer 29

Homogenous product, price takers, perfect knowledge, freedom of entry and exit

Question 30

Law of demand

Answer 30

As price increases, quantity demanded decreases vice versa

Question 31

Affects on demand

Answer 31

Substitution effect and income effect

Question 32

Movement along the demand curve

Answer 32

Change in price causes movement along

Question 33

Shift of the demand curve

Answer 33

Change in any other variable other than the price shifts the quantity demanded curve inwards or outwards

Question 34

Reasons for a shift in the demand curve

Answer 34

Price of related goods, taste, expectations about the future, number of buyers

Question 35

Law of supply

Answer 35

As price increases the quantity supplied increases vice versa

Question 36

Reasons for shift in the supply curve

Answer 36

Changes in input prices, technology, expectation, number of sellers

Question 37

Where is market equilibrium

Answer 37

Where supply and demand meet, price where everyone who wants to buy and sell can

Question 38

Adjustments of price increase to equilibrium

Answer 38

Price now above equilibrium, excess surplus as supply exceeds demand so suppliers decrease price, QD increases and this continues to return to equilibrium