Unit 1: Introduction to Microeconomics

Question 1

What is economics ?

Answer 1

Social study that studies human behaviour as a relationship between ends and scare means that have alternative means .

Question 2

What problem does economics examine?

Answer 2

Infinite wants vs finite resources. Individuals and firms have consumption desires and are constrained by access to resources .

Question 3

What is microeconomics?

Answer 3

Has to do with the individual participants in the economy : consumers , employers, producers, workers etc .

Question 4

What does microeconomics mainly focus on ?

Answer 4

Specific markets

Question 5

What is macroeconomics?

Answer 5

It is concerned with the whole economy including the micro-economy

Question 6

What does macroeconomics focus on ?

Answer 6

It focuses on the sustainability of general prices ( also known as inflation ) economic growth , distribution of income , government spending , economy full employment.

Question 7

What are wants , needs and demand?

Answer 7

Wants : the desires we have for goods and services . Wants are unlimited

Needs : necessities and are essential for survival

Demand : in order for there to be a demand for a good or service , the persons in demand needs to have the means to do so . Purchasing power

Question 8

What is the main problem with scarcity

Answer 8

People’s unlimited wants cannot be met with limited resources

Question 9

Name the factors of production?

Answer 9

Natural resources
Labour
Capital
Entrepreneurship

Question 10

What happens when resources are scares?

Answer 10

It leads us into making difficult decisions.
More goods and services can’t be produced .
Peoples desires won’t be met .

Question 11

Define opportunity cost of a choice ?

Answer 11

Value of the decision maker of the best alternative that could have been chosen but was not . Value of the best forgone opportunity.

Question 12

When do we incur opportunity cost?

Answer 12

Every time we make a decision .

Question 13

Why do economists use opportunity cost ?

Answer 13

They use it to measure the cost incurred in choices

Question 14

Why is opportunity cost a key concept in economics?

Answer 14

It captures the essence of scarcity and choice .

Question 15

Where are the concepts of scarcity , choice and opportunity cost captured?

Answer 15

On the production possibility curve

Question 16

True or false : scarcity does not affect everyone ?

Answer 16

False

Question 17

True or false : no matter how an economy is organised it will always have a limit to how much it can produce

Answer 17

True

Question 18

What is an evident limit in a economy?

Answer 18

The amount of resources available to produce goods and services

Question 19

Why is it that a great production capacity isn’t enough to satisfy our desires ?

Answer 19

Because society has limited resources (e.g., labor, land, capital, raw materials) at any point in time, there is a limit to the quantities of goods and services it can produce. Suppose a society desires two products, healthcare and education.

Question 20

True or false : A great production capacity isn’t enough to satisfy societies desires

Answer 20

True

Question 21

What is the production possibility curve ?

Answer 21

Graph that shows the maximum amount of production that can be produced by an economy with a given amount of resources

Question 22

The fundamental problem in economics is…

a) The law of increasing opportunity cost.
•b) The scarcity of resources relative to human wants.
• c) How to get the government to operate efficiently.

Answer 22

B

Question 23

Indicate whether the following statements is true or false:
a. Scarcity is a problem in poor households only.
b. The economic problem of scarcity arises because needs and wants are unlimited and the resources (or means) to fulfil these wants are limited.
c. The economic problem of scarcity can be solved by increasing the productivity of resources.

Answer 23

a) false
b) true
c) false

Question 24

Which of the following is not a factor of production?
• a. Young migrant workers
• b. Infrastructure such as highways
• c. Money held in bank and building society accounts
• d. Unexploited gas reserves in the Karoo

Answer 24

C.

Question 25

factor of production capital is created when
• a. Mr Bee buys existing shares on the stock exchange
• b. Mrs Dee inherits R5 million from her grandfather
• c. the Conrad Business School builds a new classroom

Answer 25

C.

Question 26

What is the aim with resources ?

Answer 26

Resources should be used fully and efficiently

Question 27

How is opportunity cost illustrated on the ppf?

Answer 27

By shifting resources from one production possibility to the other .

Question 28

Explain how scarcity is illustrated on the ppf?

Answer 28

With a point to the right (outside) of the ppf . It as seen as unattainable . Scarcity a lack of resources to achieve that level of production .

Question 29

What does the slope of the ppf indicate?

Answer 29

The slope of the PPF indicates the opportunity cost of producing one good versus the other good,

Question 30

How is choice illustrated on the ppf?

Answer 30

Through the need to choose between the available combinations

Question 31

What does the negative slope show ?

Answer 31

It’s a way that opportunity cost is illustrated, showing that more of the one good can only be obtained by sacrificing the other good .

Question 32

When does opportunity cost increase ?

Answer 32

Along the ppf

Question 33

How can we see that opportunity cost is increasing?

Answer 33

The concave shape of the graph

Question 34

Why does the opportunity of a choice increase along the ppf?

Answer 34

It is difficult to move resources from one industry to another

Question 35

Why is it difficult to move resources ?

Answer 35

Resources do not adapt easily

Question 36

Explain the law of opportunity cost?

Answer 36

Ever-increasing quantities of the other goods and services need to be given up in order to get more of a particular good