Week 1 - Introduction to Microeconomics

Question 1

Define Scarcity?

Answer 1

means that society has limited resources and therefore cannot produce all the goods and services people want

Question 2

Define Economics?

Answer 2

is the study of how society manages its scarce resources.

Question 3

Define Efficiency?

Answer 3

is the property of society getting the most it can from its scarce resources.

Question 4

What are the 4 main principles in economics that concern individual decision making?

Answer 4

1. People face trade-offs
2. The cost of something is what you give up to get it
3. Rational people think at the margin
4. People respond to incentives

Question 5

Define Equity?

Answer 5

is the property of distributing economic prosperity uniformly among the members of society.

Question 6

Define Opporunity Cost?

Answer 6

is whatever must be given up to obtain some item.

Question 7

Define Rational People?

Answer 7

are people who systematically and purposefully do the best they can to achieve their objectives, given the available opportunities.

Question 8

Define Marginal Change?

Answer 8

is a small incremental adjustment to a plan of action.

Question 9

Define Incentive?

Answer 9

is something that induces a person to act.

Question 10

What are the 3 main principles in economics that present some key ideas about how people interact with each other?

Answer 10

1. Trade can make everyone better off
2. Markets are usually a good way to organise economic activity
3. Governments can sometimes improve market outcomes

Question 11

Define Market Economy?

Answer 11

is an economy that allocates resources through the decentralised decisions of many forms and households as they interact in markets for goods and services.

Question 12

Define Property Rights?

Answer 12

is the ability of an individual to own and exercise control over scarce resources.

Question 13

Define Market Failure?

Answer 13

is a situation in which a market left on its own fails to allocate resources efficiently.

Question 14

Define Externality?

Answer 14

is the uncompensated impact of one persons actions on the wellbeing of a bystander. A positive externality makes the bystander better off. A negative externality makes the bystander worse off.

Question 15

Define Market power?

Answer 15

is the ability of a single economic actor (or small group of actors) to have a substantial infleucen on market prices.

Question 16

What are the 3 main principles in economics that concern the workings of the economy as a whole?

Answer 16

1. A country’s standard of living depends on its ability to produce goods and services
2. Prices rise when the government prints too much money
3. Society faces a short-run trade-off between inflation and unemployment

Question 17

Define Productivity?

Answer 17

is the quantity of goods and services produced from each hour of the worker’s time.

Question 18

Define Inflation?

Answer 18

is an increase in the overall level of prices in the economy.

Question 19

Define Business Cycle?

Answer 19

is the fluctuations in economic activity, such as employment and production.

Question 20

What are 2 of the models used in Economics?

Answer 20

1. The circular-flow diagram
2. The production possiibilities frontier

Question 21

Define circular-flow diagram?

Answer 21

is a visual model of the economy that shows how dollars flow through markets among households and firms.

Question 22

Define Production Possibilties Frontier?

Answer 22

is a graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

Question 23

Define Microeconomics?

Answer 23

is the study of how households and firms make decisions and how they interact in markets.

Question 24

Define Macroeconomics?

Answer 24

is the study of economy-wide phenomena, including inflation, unemployment and economic growth.

Question 25

What is a positive statement in terms of microeconomics?

Answer 25

is the claim to attempt to describe the world as it is. → scientific method of speaking

Question 26

What is a normative statement in terms of microeconomics?

Answer 26

is the claim that attempt to prescribe how the world should be. → policymaker method of speaking

Question 27

What are the 2 reasons why economists typically appear to give conflicting advice to policymakers?

Answer 27

1. Economists may disagree about the validity of alternative positive theories of how the world works. 2. Economists may have different values and, therefore, different normative views about what policies should try to accomplish.

Question 28

Define Absolute Advantage?

Answer 28

is the ability to produce a good using fewer inputs than another producer.

Question 29

Define Comparative advantage?

Answer 29

is the ability to produce a good at a lower opportunity cost than another producer.

Question 30

Define Imports?

Answer 30

are goods and services that are produced abroad and sold domestically

Question 31

Define Exports?

Answer 31

are goods and services that are produced domestically and sold abroad