Unit 2: Economics

Question 1

Define “need”

Answer 1

A need is a good or service that is deemed necessary for survival

Question 2

Define “want”

Answer 2

A want is a good or service that assists in improving quality of life however, is not essential for our survival

Question 3

What are the 3 resource types?

Answer 3

Labor, Natural/Land, Capital

Question 4

Define “Labor resources”

Answer 4

Mental and physical effort exerted by humans in the production process.

Question 5

Define “Natural resources”

Answer 5

Items from nature that are used in the production.

Question 6

Define “Capital resources”

Answer 6

Resources that are used to combine labor and natural resources to create a more sophisticated input in the production process (e.g. machinery or equipment in a factory or a bulldozer on a work site).

Question 7

Define “Relative scarcity”

Answer 7

Our needs and wants are unlimited, however the resources that we have available to satisfy our unlimited needs and wants are limited; therefore, we need to make choices.

Question 8

Define “Opportunity cost”

Answer 8

Opportunity cost is the value of the next best option forgone when a choice is made.

The opportunity cost doesn’t have to be valued in terms of money. It can also be valued in terms of time, experience or workload.

Question 9

What is the Basic economic problem?

Answer 9

The basic economic problem is relative scarcity- the inability to satisfy unlimited needs and wants with limited resources.

Question 10

What are the fundamental economic questions?

Answer 10

-What to produce?
-How to produce?
-For whom to produce?

Question 11

How is the question of “what to produce?” answered?

Answer 11

Determined by what people (consumers) want to buy, or rather, what they demand.

Question 12

How is the question of “how to produce?” answered?

Answer 12

The most efficient process available will be used by producers so that the good or service can be offered for sale at the lowest possible price. This will ensure the business stays competitive in the market.

Question 13

How is the question of “for whom to produce?” answered?

Answer 13

The price determines for whom the good or service will be produced. For example, everyone might want a Ferrari; however only a few wealthy people can afford one.

Question 14

Define demand

Answer 14

The ability and willingness of consumers to purchase a particular good or service.

Question 15

What is the law of demand?

Answer 15

The law of demand states: when the price increases, the quantity demanded decreases.
The law of demand also states: when the price decrease, the quantity demanded increases.

inversely proportionate

Question 16

Factors that lead to a change in demand and shift in the demand curve.

Answer 16

1. Change in the level of income
2. Fashion/Taste/Preference
3. Advertising/Marketing

Question 17

Define supply

Answer 17

The ability and willingness of suppliers to supply a particular good or service.

Question 18

What is the law of supply?

Answer 18

The law of supply states : when the price increases, the quantity supplied increases.
The law of supply also states : when the price decreases, the quantity supplied decreases.

positive relationship

Question 19

Factors that lead to a change in supply and shift in the supply curve.

Answer 19

1. Availability of resources
2. Cost of production (E.g. Resources such as human, labor or natural resources

Question 20

Planned economy.

Answer 20

A planned economy is an economy in which the three fundamental economic questions are answered by the government.

That is, the government plans what goods and services should be produced, how goods and services should be produced and for whom they should be produced.

For example, North Korea has a planned economy.

Question 21

Market economy

Answer 21

A market economy is a free enterprise system in which the three fundamental economic questions are answered by the private sector and market forces of demand and supply.

That is, decisions on what goods and services to produce, how best to produce them and for whom to produce the goods and services, are made by the private sector and market forces of demand and supply.

For example, Australia has a market economy.

Question 22

Macroeconomics

Answer 22

The study of the economy as a whole. When examining macroeconomics, we explore Australia as a whole.

Question 23

Microeconomics

Answer 23

The study of individual parts of the economy that interact to make up the whole economy.

Question 24

Macroeconomic goals

Answer 24

1. It wants the economy to grow over time
2. It wants to keep unemployment as low as possible
3. It wants to keep prices stable

Question 25

Gross Domestic Product (GDP)

Answer 25

GDP is the final market value of all goods and services produced in an economy.

Question 26

Unemployment rate

Answer 26

4-5% is considered to be the natural unemployment rate. This unemployment rate is also known as full employment.

Question 27

Inflation

Answer 27

A sustained increase in the general or average price level over time. The government aim is to keep inflation between 2-3%