Week 1

Question 1

What is scarcity?

Answer 1

The situation in which unlimited wants exceed limited resources

Question 2

Economics is the study of…

Answer 2

The choices people make to attain their goals, given limited resources

Question 3

Where do economic agents interact with eachother ?

Answer 3

In any place that brings together buyers and sellers

Question 4

What is opportunity cost ?

Answer 4

The foregone cost of using the next best alternative factor of production

Question 5

What does a production possibility frontier show ?

Answer 5

The maximum attainable combinations of 2 products being produced in a particular time period with limited resources

Question 6

The production possibility frontier model assumes what?

Answer 6

The economy produces only two products.

Question 7

The attainable production points on a production possibility curve are:

Answer 7

the points along and inside the production possibility frontier.

Question 8

what are the three key economic assumptions?

Answer 8

1. people are rational
2. people respond to economic incentives
3. optimal decisions are made at the margin

Question 9

what do economists mean when they assume people are rational?

Answer 9

consumers and firms use as much of the available information as they can to achieve their goals. they weigh up the benefits and risks and choose an action only if the benefits outweigh the costs

Question 10

what is a trade-off?

Answer 10

producing more of one good of service means producing less than another

Question 11

what 3 questions must a firm answer when making decisions?

Answer 11

1. what goods and services will be produced?
2. how will the goods and services be produced ?
3. who will receive the goods and services?

Question 12

what is an economic model?

Answer 12

simplified versions of reality, used to analyse real-world economic situations

Question 13

what 5 steps do economists generally follow in order to devise an economic model?

Answer 13

Decide on the assumptions to be used in developing the model.

Formulate a testable hypothesis.

Use economic data to test the hypothesis.

Revise the model if it fails to explain the economic data well.

Retain the revised model to help to answer similar economic questions in the future

Question 14

what is microeconomics?

Answer 14

the study of how households and firms make decisions, how they interact with markets and how the government attempts to influence their choices

Question 15

what is macroeconomics ?

Answer 15

the study of the economy as a whole, including inflation, unemployment and economic growth.

Question 16

the 2 main goals when making economic decisions are…

Answer 16

efficiency and equity

Question 17

what is efficiency?

Answer 17

to produce the maximum amount of output with the minimum number of inputs

Question 18

what is equity?

Answer 18

the fair distribution of economic benefits between individuals and societies

Question 19

what is equity?

Answer 19

the fair distribution of economic benefits between individuals and societies

Question 20

what are the 3 main types of efficiency?

Answer 20

Productive efficiency—Lowest cost production.
Allocative efficiency—The right combination of goods to satisfy consumer’s needs.
Dynamic efficiency—Implementation of innovation and improved technologies to enhance productive efficiency over time.

Question 21

What are the two main categories of participants in the markets?

Answer 21

Households and firms.

Question 22

Which participants are of greatest importance in determining what goods and services are produced?

Answer 22

households

Question 23

what is absolute advantage?

Answer 23

Absolute advantage is the ability of a party (an individual, a firm or a country) to produce a greater quantity of a good, product or service over competitors by using the same amount or fewer resources, or by using a more efficient process.

Question 24

what is a comparative advantage?

Answer 24

Comparative advantage is the ability of a party to produce a greater quantity of a good, product or service at a lower opportunity cost, though not necessarily at a greater volume

Question 25

what is a free market?

Answer 25

A market with few government restrictions on how a good or service can be produced or sold, or on how a factor of production can be employed.

Question 26

what is a price mechanism?

Answer 26

The system in a free market where price changes lead to producers changing production in accordance with the level of consumer demand.

Question 27

what are property rights ?

Answer 27

The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.

Question 28

what role do property rights play in the working of a market system?

Answer 28

property rights allow firms to risk their investment into developing a new product. they provide protection from competitors copying their product. Therefore, if property rights do not exist, the production of goods and services will be reduced and living standards will be lower.