Unit 1: Introduction to Microeconomics Flashcards
What is economics ?
Social study that studies human behaviour as a relationship between ends and scare means that have alternative means .
What problem does economics examine?
Infinite wants vs finite resources. Individuals and firms have consumption desires and are constrained by access to resources .
What is microeconomics?
Has to do with the individual participants in the economy : consumers , employers, producers, workers etc .
What does microeconomics mainly focus on ?
Specific markets
What is macroeconomics?
It is concerned with the whole economy including the micro-economy
What does macroeconomics focus on ?
It focuses on the sustainability of general prices ( also known as inflation ) economic growth , distribution of income , government spending , economy full employment.
What are wants , needs and demand?
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
What is the main problem with scarcity
People’s unlimited wants cannot be met with limited resources
Name the factors of production?
Natural resources
Labour
Capital
Entrepreneurship
What happens when resources are scares?
It leads us into making difficult decisions.
More goods and services can’t be produced .
Peoples desires won’t be met .
Define opportunity cost of a choice ?
Value of the decision maker of the best alternative that could have been chosen but was not . Value of the best forgone opportunity.
When do we incur opportunity cost?
Every time we make a decision .
Why do economists use opportunity cost ?
They use it to measure the cost incurred in choices
Why is opportunity cost a key concept in economics?
It captures the essence of scarcity and choice .
Where are the concepts of scarcity , choice and opportunity cost captured?
On the production possibility curve
True or false : scarcity does not affect everyone ?
False
True or false : no matter how an economy is organised it will always have a limit to how much it can produce
True
What is an evident limit in a economy?
The amount of resources available to produce goods and services
Why is it that a great production capacity isn’t enough to satisfy our desires ?
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.
True or false : A great production capacity isn’t enough to satisfy societies desires
True
What is the production possibility curve ?
Graph that shows the maximum amount of production that can be produced by an economy with a given amount of resources
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.
B
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.
a) false
b) true
c) false
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
C.
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
C.
What is the aim with resources ?
Resources should be used fully and efficiently
How is opportunity cost illustrated on the ppf?
By shifting resources from one production possibility to the other .
Explain how scarcity is illustrated on the ppf?
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 .
What does the slope of the ppf indicate?
The slope of the PPF indicates the opportunity cost of producing one good versus the other good,
How is choice illustrated on the ppf?
Through the need to choose between the available combinations
What does the negative slope show ?
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 .
When does opportunity cost increase ?
Along the ppf
How can we see that opportunity cost is increasing?
The concave shape of the graph
Why does the opportunity of a choice increase along the ppf?
It is difficult to move resources from one industry to another
Why is it difficult to move resources ?
Resources do not adapt easily
Explain the law of opportunity cost?
Ever-increasing quantities of the other goods and services need to be given up in order to get more of a particular good
