Unit 1: Introduction

Question 1

Actual growth

Answer 1

Occurs when real output (real GDP) increases through time and is a result of greater or better use of existing resources. In the PPC model it can be illustrated by a movement from a point inside a PPC to another point in the northeast direction.

Question 2

Ceteris paribus

Answer 2

A Latin expression meaning “other things being equal”.

Question 3

Circular economy

Answer 3

An economic system that looks beyond the linear take-make-dispose model and aims to redefine growth, focusing on society-wide benefits. It is based on three principles: design out waste, keep products and materials in use, and regenerate natural systems.

Question 4

Circular flow of income

Answer 4

A simplified illustration that shows the flows of income and expenditures in an economy.

Question 5

Economic goods

Answer 5

Any good or service that requires scarce resources and thus has a price

Question 6

Economics

Answer 6

Economics is the study of how to make the best possible use of scarce or limited resources to satisfy unlimited human needs and wants.

Question 7

Economic well-being

Answer 7

A multidimensional concept relating to the level of prosperity and quality of living standards in a country.

Question 8

Efficiency

Answer 8

In general, involves making the best use of scarce resources. May refer to producing at the lowest possible cost or to allocative efficiency where marginal social costs are equal to marginal social benefits or where social surplus is maximum.

Question 9

Entrepreneurship

Answer 9

Refers to the ability of certain individuals to organize the other factors of production and their willingness to take risks.

Question 10

Equity

Answer 10

The concept or idea of fairness.

Question 11

Factors of production

Answer 11

Resources used in the production of goods and services; include land (natural resources), labour, capital and entrepreneurship.

Question 12

Firms

Answer 12

Productive units that transform inputs (factors of production) into output (goods and services), usually aiming at earning profits.

Question 13

Free goods

Answer 13

Goods such as air or sea water that are not considered scarce and thus do not have an opportunity cost.

Question 14

Free market economy

Answer 14

An economy where the means of production are privately owned and where market forces determine the answers to the fundamental questions (what/how much, how and for whom) that all economies face.

Question 15

Human capital

Answer 15

The education, training, skills, experience and good health embodied in the labour force of a country.

Question 16

Income

Answer 16

A flow of earnings from using factors of production to produce goods and services. Wages and salaries are the factor reward to labour and interest is the flow of income for the ownership of capital.

Question 17

Injections

Answer 17

Within the circular flow model these refer to spending on domestic output that does not originate from households and thus includes investment spending by firms, government expenditures and exports.

Question 18

Labour

Answer 18

One of the four factors of production that refers to the physical and mental contribution of workers to the production process.

Question 19

Laissez faire

Answer 19

The view that if market forces are left alone unimpeded by government intervention the outcome will be efficient.

Question 20

Land

Answer 20

One of the four factors of production that refers to the natural resources with which an economy is endowed; also referred to as “gifts of nature”.

Question 21

Land rights

Answer 21

Property (ownership) legal rights over land holdings that include rights to possess, occupy and use the land.

Question 22

Leakages

Answer 22

Income not spent on domestic goods and services. It includes savings, taxes and import expenditure.

Question 23

Macroeconomics

Answer 23

The study of aggregate economic activity. It investigates how the economy as a whole works.

Question 24

Marginal utility

Answer 24

The extra or additional utility derived from consuming one more unit of a good or service.

Question 25

Microeconomics

Answer 25

The study of the behaviour of individual consumers, firms, and markets and the determination of market prices and quantities of goods, services, and factors of production.

Question 26

Mixed economy

Answer 26

An economy that has elements of a planned economy and elements of a free market economy. In reality, all economies are mixed. What is different is the degree of the mix from country to country.

Question 27

Normative economics

Answer 27

Deals with areas of the subject that are open to personal opinion and belief, thus not subject to refutation.

Question 28

Opportunity cost

Answer 28

The next best alternative foregone when an economic decision is made.

Question 29

Planned economy

Answer 29

An economy where the means of production (land and capital) are owned by the state. The state determines what/how much to produce, how to produce, and for whom to produce.

Question 30

Positive economics

Answer 30

Deals with areas of the subject that are capable of being falsified, or shown to be correct or not.

Question 31

Potential growth

Answer 31

Growth in production possibilities: When the production possibilities of a country increase because of more/better resources and/or better technology becoming available; illustrated by a shift outwards of the PPC.

Question 32

Potential output

Answer 32

Output produced by an economy when it is at full employment equilibrium, or long-run equilibrium according to the monetarist/new classical model.

Question 33

Primary commodities

Answer 33

Raw materials that are produced in the primary sector. Examples include agricultural products, metals and minerals.

Question 34

Primary sector

Answer 34

Anything derived from the factor of production land. Includes agricultural products, metals and minerals.

Question 35

PPC

Answer 35

production possibilities curve: A curve showing the maximum combinations of goods or services that can be produced by an economy in a given time period, if all the resources in the economy are being used fully and efficiently and the state of technology is fixed.

Question 36

Productive capacity

Answer 36

The greatest capability of an economy to produce, usually measured by maximum possible output of an economy.

Question 37

Rationing

Answer 37

A method used to divide or apportion goods and services or resources among the various interested parties.

Question 38

Resource allocation

Answer 38

Apportioning available resources or factors of production to particular uses for production purposes.

Question 39

Say’s Law

Answer 39

A proposition stating that the supply of goods creates its own demand.

Question 40

Scarcity

Answer 40

The limited availability of economic resources relative to society’s unlimited needs and wants of goods and services.

Question 41

Social sciences

Answer 41

Academic studies of human societies and how people in society interact with each other.

Question 42

Stakeholder

Answer 42

An individual or group of individuals who have an interest, or stake, in an economic activity or outcome.

Question 43

Sustainability

Answer 43

Refers to the preserving the environment so that it can continue to satisfy needs and wants into the future. Relates to the concept of “sustainable development”.

Question 44

Utility

Answer 44

A measure of the satisfaction derived from consuming a good or service.

Question 45

Keynesian revolution

Answer 45

An economic school of thought based upon the works of John Maynard Keynes, challenging the classical (laissez faire) viewpoint and advocating an interventionist role for the government in managing the level of aggregate demand and thus of economic activity.

Question 46

Monetarist/new classical counter revolution

Answer 46

An economic school of thought arguing that the price mechanism along with well-functioning competitive markets are sufficient to lead the economy to full employment. In this school of thought, government intervention is not necessary to manage the level of aggregate demand.