WHAT IS ECONOMICS?

Question 1

what is an economy?

Answer 1

a system that organises how individuals and organisations transact to allocate resources to the production, distribution, and consumption of goods and services within a particular geographic area or community.

Question 2

what is economics?

Answer 2

the study of how to make the best possible use of scarce or limited resources to satisfy unlimited human needs and wants.

Question 3

what are resources?

Answer 3

the basic categories of inputs to the production process used to produce goods and services. these include: land, labour, capital and entrepreneurial resources.

Question 4

what is scarcity?

Answer 4

the limited availability of economic resources relative to society’s needs and unlimited wants for goods and services.

Question 5

what is sustainability?

Answer 5

maintaining the ability of the environment and the economy to continue to produce and satisfy needs and wants into the future.

Question 6

what is opportunity cost?

Answer 6

the next best alternative foregone when an economic decision is made.

Question 7

what are free goods?

Answer 7

goods that are not considered scarce and thus do not have an opportunity cost

Question 8

what are economic goods?

Answer 8

any good that is scarce and therefore has an opportunity cost

Question 9

what is resource allocation?

Answer 9

assigning available resources (factors of production) to specific uses chosen from many competing alternatives.

Question 10

what is planned economy?

Answer 10

government owns resources and decides where resources will be allocated.

Question 11

what is free market economy?

Answer 11

resources are owned by individuals and are allocated via demand and supply.

Question 12

what are leakages?

Answer 12

income not spent on domestic goods and services. it includes savings, taxes, and import expenditure.

Question 13

what are injections?

Answer 13

within the circular flow model, they refer to spending on domestic output that does not originate from households and this includes investment spending by firms, government expenditures and exports.

Question 14

when does scarcity occur?

Answer 14

when needs + unlimited wants ≠ resources.

Question 15

how does the government provide security?

Answer 15

• personal (police)
• national (defence force)

Question 16

what two things does a PPC assume?

Answer 16

1. a nation can only produce 2 types of output
2. scare resources are ‘fully employed’ and the most efficient production techniques are used
   (3. technology is fixed)

Question 17

PPC: what is an allocatively efficient output?

Answer 17

the particular mix of goods a society produces represents the combination that society most desires. only one output on the PPC will be allocatively efficient.

Question 18

PPC: when does an unobtainable output occur?

Answer 18

when there is insufficient resources to produce the desired output. it is unobtainable because there is not sufficient quantity or quality of resources to achieve this output combination.

Question 19

what are the shapes of an increasing opportunity costs and constant opportunity costs PPCs?

Answer 19

increasing opportunity costs: curve
constant opportunity costs: straight line

Question 20

what are the two sectors for the circular flow of income model?

Answer 20

• household sector
• business sector

Question 21

what are the four flows of the circular flow of income model?

Answer 21

1. supply of factors to firms (land, labour and capital)
2. total payment for factors (wages, rent, interest profits)
3. consumer spending (demand for goods and services)
4. total production (supply of goods and services)

Question 22

PPC: what is actual output?

Answer 22

occurs when real output increases through time and is a result of more productive use of existing resources either by using unemployed resources or by increases in productivity.

Question 23

PPC: what is potential output?

Answer 23

occurs when there is an increase in production possibilities of an economy, this is caused by an increase in the quantity or quality of factors of production.