1.1 Introductory concepts

Question 1

Ceteris paribus

Answer 1

All other things remaining the same; to isolate the factor you wish to analyse.

Question 2

Positive statement

Answer 2

An objective statement that can be refuted by facts.

Question 3

Normative statement

Answer 3

A subjective statement, involves judgements or opinions; it can’t be proven or disproven.

Question 4

Scarcity

Answer 4

The shortage of resources in relation to the quantity of human wants.

Question 5

Basic economic problem

Answer 5

The problem of scarcity; wants are unlimited but resources are finite, so choices have to be made.

Question 6

Opportunity cost

Answer 6

The value of the next best alternative forgone.

Question 7

Economic goods

Answer 7

Scarce resources that have opportunity cost.

Question 8

Free goods

Answer 8

Goods with abundant supply, no opportunity cost, and can be consumed without reducing availability to others.

Question 9

Capital

Answer 9

Money or manufactured stock of resources used in production, in forms of fixed or working.

Question 10

Fixed capital

Answer 10

Capital that won’t be transformed into a product (e.g., factories, machines).

Question 11

Working capital

Answer 11

Raw materials or supplies that transform into a product for sale.

Question 12

Enterprise

Answer 12

The willingness and ability to take risks and combine the three other factors of production

Question 13

Land

Answer 13

Natural resources, divided into renewable and non-renewable.

Question 14

Labor

Answer 14

workforce / human capital

Question 15

Renewable resources

Answer 15

Resources that can be replenished, so stock can be maintained over time as consumption doesn’t deplete supply.

Question 16

Non-renewable resources

Answer 16

Resources that cannot be readily replenished or replaced at a level equal to consumption, leading to a decrease in stock over time.

Question 17

Renewable resources 4 PROS

Answer 17

1. Cleaner and less polluting
2. Help reduce carbon emissions / external costs associated with non-renewable resources
3. Don’t deplete resources like non-renewable
4. Helps image / branding / sales

Question 18

Renewable resources 4 CONS

Answer 18

1. May not be available round the clock (solar, wind)
2. low efficiency (unstable electricity supply)
3. high initial cost (solar power panels, wind farms)
4. geographic limitations (build solar/wind farms in certain areas only)

Question 19

Possibility production frontier (PPF)

Answer 19

shows maximum productive potential of an economy through different combinations of goods when all factors of production are fully and efficiently employed

Question 20

Movements along the curve mean…

Answer 20

reallocation of resources from production of one product to the other

Question 21

point lying on ppf means…

Answer 21

econ is producing greatest possible output

Question 22

point inside ppf means…

Answer 22

econ is productively inefficient

Question 23

what causes ppf to shift (in/outwards)

Answer 23

quantity/quality of factors of production

Question 24

What does straight-line ppf indicate
when will it occur

Answer 24

constant opp costs (don’t change) when econ moves from one point to another on ppf curve

FOPs are equally well suited to production of both goods
ie resources perfectly substitutable
(football basketball)

Question 25

Capital goods

Answer 25

goods that are produced to aid production of consumer goods in the future (roads,factories,vehicles)

Question 26

Consumer goods

Answer 26

Goods bought and desired by households and individuals

Question 27

Division of labour

Answer 27

when production process is broken down into tasks, and labor focuses on specific tasks

Question 28

Specialisation

Answer 28

production of a limited range of goods by firm/country/individual so they aren’t self-sufficient and have to trade with others (specialisation of individauls = division of labor)

Question 29

Barter

Answer 29

a system of exchange where you swap one thing for another which requires double coincidence of wants

Question 30

Cons of bartering

Answer 30

led to self-sufficiency , discouraged trade and specialisation, didnt increase standard of living

Question 31

why money instead of bartering

Answer 31

money encourages trade and aids specialisation

Question 32

what is money

Answer 32

anything that's generally accepted as a medium of exchange

Question 33

4 functions of money

Answer 33

medium of exchange -can be used to buy/sell measure of value -prices method of deferred payment -ppl only lend money if they think they can buy the same amt of goods when paid back (settle debts) store of value -purchasing power for future can be stored in money

Question 34

Market

Answer 34

Any convenient set of arrangements where buyers/sellers communicate to exchange goods/services

Question 35

Financial markets

Answer 35

buyers and sellers trade **services/assets** that are monetary in nature, allows ppl to **make profits** (stock,currency,bond)

Question 36

Product markets

Answer 36

buying/selling of physical goods/services

Question 37

Factor markets

Answer 37

buying/selling of capital land labor

Question 38

5 roles of financial markets

Answer 38

1. facilitate saving - increase spending on future consumer goods / firms save for capital goods 2. facilitate exchange of goods and services - create payment systems to trade quickly 3. make funds available to businesses and individuals through borrowing - firms buy capital goods, expand ouput ; consumers living standard 4. Provide a market for equities (shares) - shares allow firms to raise capital, investors to make profits 5. provide forward markets in commodities and currencies -agreeing on a future price today

Question 39

Free market

Answer 39

An economy where *almost all* resources are allocated by market forces of demand and supply with minimal to no gov intervention

Question 40

Price mechanism

Answer 40

allocates resources through bringing together buyers and sellers who agree on a price

Question 41

Command economy

Answer 41

An economy where (almost) all resources are allocated by the government with no markets of exchanging w/o intervention

Question 42

Mixed economy

Answer 42

An economy where resources are allocated partly through the price mechanism and partly through government intervention