Social The Concept of Consumption and Production

Question 1

Economy is composed of two decision-making units. Firm and Households

Answer 1

Circular Flow of the Economy

Question 2

Defined as the purchase of goods and services by the households for personal use

Answer 2

Consumption

Question 3

In the book, The Wealth of Nations, Adam Smith claims that “consumption was the sole end of production”

Answer 3

Classical Interpretation of Consumption

Question 4

Interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer

Answer 4

Classical Interpretation of Consumption

Question 5

Father of Classical Economic School of Thought

Answer 5

Adam Smith

Question 6

Disposable income(Yⅆ) refers to the remaining income an individual has after taxes and other government obligations (T) are deducted from the individual’s gross income (Y)
-Yⅆ=Y-T

Answer 6

Absolute Income Hypothesis

Question 7

Keynes supported his absolute income hypothesis with the mathematical expression of consumption

Answer 7

Consumption function

Question 8

Measures the change in consumption given a change in disposable income

Answer 8

The Marginal Propensity to Consume (MPC)

Question 9

An alternative to Keynes’ consumption function theory and was created by Milton Friedman.

Answer 9

Permanent Income Hypothesis

Question 10

What are the Determinants of Consumption

Answer 10

Interest Rate and Consumer Expectation

Question 11

Is a concept in microeconomics which links consumer spending to personal preferences which are, in turn, subject to the individual’s maximum utility and budget constraints.

Answer 11

Consumer Choice Theory

Question 12

Refers to satisfaction

Answer 12

Utility

Question 13

Sets the limit to what the households can buy given their limited income

Answer 13

Budget

Question 14

Consumers are fully aware of all options prior to making decisions

Answer 14

Full Information

Question 15

Given two identical goods, a rational consumer is indifferent to either good

Answer 15

Indifference

Question 16

If a consumer prefers GOOD A to GOOD B and prefers GOOD B to GOOD C, the same consumer is assumed to prefer GOOD A to GOOD C

Answer 16

Consistency

Question 17

Consumers are assumed to be utility-maximizing individuals who would always prefer the option that gives the highest satisfaction

Answer 17

Diminishing

Question 18

Is identified as “household final consumption expenditure” in the government’s national income statistics

Answer 18

Consumption Expenditure

Question 19

What are the three processes in production?

Answer 19

Input, production system, and output

Question 20

It is the first stage of production and consists an power, raw material, capital, energy, information

Answer 20

Input

Question 21

Manual or mechanical operations when manufacturing a good

Answer 21

Production system

Question 22

The last stage of production, and is the effect of Production system

Answer 22

Output

Question 23

It is impossible to carry out production without land, water, and other resources

Answer 23

Nature

Question 24

Transformation of resources into goods or services

Answer 24

Labor

Question 25

Money used as a resource to buy capital goods

Answer 25

Capital

Question 26

Combines all other factors of production into a product or service. The profit is the reward to the entrepreneur

Answer 26

Enterprise

Question 27

Observed when you need to produce one single unit of a product at a time

Answer 27

Unit or Job Type Production

Question 28

A large variety of products being manufactured with variable demands

Answer 28

Batch Production

Question 29

Manufacturing large quantities of standardized products. Work is done by humans and machines

Answer 29

Mass Production/Flow Production

Question 30

It is done purely by machines. It is done 24/7

Answer 30

Continuous Production or Process production

Question 31

It is the first step in the supply chain. Extracts or grows raw materials

Answer 31

Primary Sector

Question 32

Raw materials are turned into finish products

Answer 32

Secondary Sector

Question 33

It is when the finished products are sold

Answer 33

Tertiary Sector

Question 34

The resources don’t change as you produce more products

Answer 34

Fixed Resources

Question 35

Resources change with how much more products are being produced

Answer 35

Variable Resources

Question 36

The more workers there are, the more that is being manufactured. But if there are too much workers and the fixed resources can no longer accommodate, then the rate in which the goods are manufactured decreases.

Answer 36

Diminishing Returns