Session 1

Question 1

Centrally Planned Economy

Answer 1

An economy where the government decides how economic resources will be allocated.

Question 2

Market Economy

Answer 2

An economy where the decisions of households and firms interacting in markets allocate economic resources.

Question 3

Mixed Economy

Answer 3

A compromise between planned and market economies where households and firms interacting in markets determines a majority of the economic decisions, but governments still control a sizeable minority, and enforce conditions on markets.

Question 4

Productive Efficiency

Answer 4

When a good or service is produced using the least amount of resources possible.

Question 5

Allocative Efficiency

Answer 5

When production reflects consumer preferences, and the marginal benefit to consumers in all markets is equal to the marginal cost of production.

Question 6

Opportunity Cost

Answer 6

The highest-valued alternative that must be given up to engage in an activity.

Question 7

Dynamic efficiency

Answer 7

Very vague, but basically means achieving strong economic growth in the long run, inventing new technologies (defined broadly).

Question 8

Positive Analysis

Answer 8

Value free analysis that simply checks facts, remaining independent of ideology.

Question 9

Normative Analysis

Answer 9

Analysis concerned with what should, or ought to be the case, whether or not outcomes are better or worse for society or individuals. Involve value judgements.

Question 10

Microeconomics

Answer 10

The study of how households and firms make choices, how they interact in markets and how the government attempts to influence their choices.

Question 11

Macroeconomics

Answer 11

The study of the economy as a whole, with large markets that influence each other and feed back into themselves, including topics like inflation, employment and economic growth.

Question 12

Demand Curve

Answer 12

A curve that shows the relationship between the quantity demanded and the price that each unit costs.

Question 13

Supply Curve

Answer 13

A curve that shows the relationship between the price a unit can be sold at and the quantity that would be offered for sale at that price.

Question 14

Supply/Demand Schedule

Answer 14

A table showing combinations of quantity supplied/demanded and price.

Question 15

Law of Demand

Answer 15

Holding everything else constant, when the price of one good increases, quantity demanded will fall.

Question 16

Law of Supply

Answer 16

Holding everything else constant, when the sale price of one good increases, the quantity supplied will increase.

Question 17

Ceteris Paritus

Answer 17

The requirement that when analysing two variables, all others are considered to be unaffected, ie, held at the same level.

Question 18

Substitution Effect

Answer 18

The change in the quantity demanded of a good or service that results from a change in price, making the good more or less expensive relative to other substitutes.

Question 19

Income Effect

Answer 19

The change in the quantity demanded of a good or service that results from the consumers increased income / purchasing power.

Question 20

Normal Good

Answer 20

A good for which demand increases as income rises Inferior Good A good for which demand decreases as income rises.

Question 21

Technological Change

Answer 21

A Change in the ability of a firm to produce a given level of output with a given quantity of inputs.

Question 22

Productivity

Answer 22

Output produced per unit of input.

Question 23

Surplus

Answer 23

The situation where the quantity supplied exceeds the quantity demanded.

Question 24

Shortage

Answer 24

The situation where the quantity demanded of a produced exceeds the quantity supplied..

Question 25

Factors the effect demand

Answer 25

• Change in income.
• Price of substitute good.
• Price of complementary good
• Consumer taste for good.
• Population
• Expected future price of the good.

Question 25

Factors that effect Supply

Answer 25

• Price of an input.
• Productivity.
• Price of a substitute in production.
• Number of firms in the market.
• The expected future price of the product.