The allocation of resources

Question 1

Microeconomics

Answer 1

the study of the behavior and decisions of households and firms, and the performance of individual markets.

Question 2

Macroeconomics

Answer 2

the study of the whole economy

Question 3

Planned economic system

Answer 3

an economic system where the government makes the crucial decisions, land and capital are state-owned and resources are allocated by directives

Question 4

Mixed economic system

Answer 4

an economy in which both the private and public sectors play an important role

Question 5

Market economic system

Answer 5

an economic system where consumers determine what is produced, resources are allocated by the price mechanism, and land and capital are privately owned

Question 6

Price mechanism

Answer 6

the way the decisions made by households and firms interact to decide the allocation of resources

Question 7

Market equilibrium

Answer 7

a situation where demand and supply are equal at the current price

Question 8

Extension in demand

Answer 8

a rise in the quantity demanded caused by a fall in the price of the product itself.

Question 9

Contraction in demand

Answer 9

a fall in the quantity demanded caused by a rise in the price of the product itself.

Question 10

Normal goods

Answer 10

a product whose demand increases when income increases and decreases when income falls

Question 11

Inferior goods

Answer 11

a product whose demand decreases when income increases and increases when income falls

Question 12

Substitute

Answer 12

a product that can be used in place of another

Question 13

Complement

Answer 13

a product that is used together with another product

Question 14

Birth rate

Answer 14

the number of live births per thousand of the population in a year

Question 15

Price elasticity of demand (PED)

Answer 15

a measure of the responsiveness of the quantity demanded to a change in price

Question 16

Elastic demand

Answer 16

when the quantity demanded changes by a greater percentage than the change in price

Question 17

Inelastic demand

Answer 17

when the quantity demanded changes by a smaller percentage than the change in price

Question 18

Privatization

Answer 18

the sale of public assets to the private sector

Question 19

Market failure

Answer 19

market resources resulting in an inefficient allocation of resources

Question 20

Free rider

Answer 20

someone who consumes a good or service without paying it

Question 21

Socially optimum output

Answer 21

the level of output where social cost equals social benefit and society’s welfare is maximized

Question 22

Merit goods

Answer 22

products which the government considers consumers do not fully appreciate how beneficial they are and so they will be under-consumed if left to market forces.

Question 23

Demerit goods

Answer 23

products that the government considers consumers do not fully appreciate how harmful they are and so they will be over-consumed if left to market forces.

Question 24

Private goods

Answer 24

a product that is both rival and excludable

Question 25

Nationalization

Answer 25

moving the ownership and control of an industry from the private sector to the government