1.1 Foundation of Economics

Question 1

Social Science

Answer 1

Collect data to back up hypothesis

Question 2

Social Scientific Method

Answer 2

Develop hypothesis

Question 3

Model Building

Answer 3

Construct a system to explain a hypothesis

Question 4

Basic Economic Problem

Answer 4

To satisfy unlimited wants with limited resources

Question 5

Factors of Production

Answer 5

Land
Labour
Capital
Entrepreneurship/Enterprise/Management

Question 6

Positive Statement

Answer 6

refers to statement of fact

Question 7

Normative Statement

Answer 7

refers to statement of opinion

Question 8

Rational Decision Making

Answer 8

You have a reason for making a decision. The choice as a consumer should be based on rational decision making. Should follow a logical sequence of events that led you to that choice

Question 9

Infinite vs Finite

Answer 9

unlimited/limited

Question 10

Need

Answer 10

goods that are essential to survival
e.g. food water etc

Question 11

Want

Answer 11

A want satisfies a desire and has usefulness (utility)
- unlimited
- they are complimentary
- Reoccuring

Question 12

What is a resource?

Answer 12

Something we use to produce something else
- Limited
- Accessible
- Has to exist

Question 13

3 Basic Economic Questions

Answer 13

Economics is a study of how we make choices
- What to produce?
- How much to produce and how?
- For whom to produce?
^= Rational Decision Making

Question 14

Economics is…

Answer 14

A social science which studies human behavior and the way in which we choose among the alternate use of scarce resources to satisfy wants

Question 15

Equity

Answer 15

The concept or idea of fairness for different people in different groups.

Question 16

Efficiency

Answer 16

Making the best possible use of scarce resources to produce the combination of goods and services optimum for society, thus minimizing resource waste.

Question 17

Economic Well - Being

Answer 17

A multi - dimensional concept relating to the level of prosperity and the quality of living standard enjoyed by members of the economy.

Question 18

Intervention

Answer 18

Government involvement in the workings of markets to achieve certain societal goals, such as equity, economic well being or sustainability.

Question 19

Sustainability

Answer 19

The ability of the present generation to meets its needs without compromising the ability of future generations to meet its own needs. The degree to which economic activities of the current generation create harmful environmental outcomes.

Question 20

Choice

Answer 20

This results from scarce resources being unable to satisfy all human needs and wants.

Question 21

Scarcity

Answer 21

A central concept in Economics which refers to the limited availability to economic resources relative to society’s unlimited demand for goods and services.

Question 22

Interdependence

Answer 22

Consumers, firms, households, workers, and governments (all economic actors) interact with each other within and increasingly, across nations in order to achieve economic goals. This leads to dependence upon one another.

Question 23

Change

Answer 23

The economic world is in a continual state of flux and economists must be aware of this and adapt their thinking accordingly.

Question 24

Demand

Answer 24

The quantity of goods and services that consumers are willing and able to buy at each possible price over a given time.

Question 25

Law of Demand

Answer 25

As price increases, quantity demanded decreases, ceteris paribus

Question 26

Inferior Good

Answer 26

As income increases, demand decreases
e.g. public transport
As price increases, quantity demanded decreases

Question 27

Consumer (Final) Good

Answer 27

Goods that are consumed to satisfy wants

Question 28

Ceteris Paribus

Answer 28

All other things held equal.

Question 29

Opportunity Cost

Answer 29

The next best alternative forgone (not chosen/given up)

Question 30

Capital (Intermediate) Good

Answer 30

Goods use to produce other goods
e.g. computer

Question 31

Economic Good

Answer 31

A goods or service that can command a price

Question 32

Microeconomics

Answer 32

Is the study of individual markets

Question 33

Macroeconomics

Answer 33

is the study of the economy as a whole

Question 34

Global Economics

Answer 34

is the study of all markets and how they interact = trade between firms/markets/countries

Question 35

Free Good

Answer 35

Abundant
0 price
0 oppurtunity cost in production

Question 36

Normal Good

Answer 36

as income increases, demand increases
e.g. luxury cars
as price increases, quantity demanded decreases

Question 37

Giffen Good

Answer 37

A giffen good is an inferior good where the substitution effect outweighs the income effect. As price increases, demand also increases.

Question 38

Veblen Good

Answer 38

A veblen good is a status good or a snob good where as the price increases, quantity demanded also rises.

Question 39

Free Market

Answer 39

When the government doesn’t intervene
Don’t put taxes, restrictions, laws
The free market is left to the producers to decide

Question 40

Planned Economy

Answer 40

When you tell the economy what to do and when
Has a central unit to decide how much to produce and when and price and everything

Question 41

How do Economists build models?

Answer 41

Develop a theory, collect data to support theory
Then test it out in different circumstances

Question 42

What assumptions do they make?

Answer 42

Most are made with ceteris paribus
That’s why most a flawed though