Basics of Microeconomics

Question 1

What is Homo Economicus

Answer 1

Homo Economicus is the idea that consumers are

• Rational
• self-interested
• optimal decision makers

Question 2

Define Ceteris Paribus

Answer 2

All other factors remain constant

Question 3

Define a positive statement

Answer 3

Positive statements can be supported by evidence/can be tested

Question 4

Define a normative statement

Answer 4

Are value-judgements/opinions

Question 5

What is the basic economic problem

Answer 5

There are infinite wants and scarce resources

Question 6

What are the factors of production

Answer 6

C - Capital
E - Enterprise
L - Land
L- Labour

Question 7

What are renewable resources

Answer 7

Resources that are reusable/always available

Question 8

What are non-renewable resources

Answer 8

resources that once they are used are no longer available

Question 9

What is opportunity cost

Answer 9

The benefit given up of the next best alternative

Question 10

What is a PPF

Answer 10

A curve which shows the maximum potential level of output of two goods given a level of output of an economy

Question 11

What does each part of a PPF represent

Answer 11

X axis - good 1
Y axis - good 2
PPF curve - Maximum productive potential with all resources being efficiently allocated

Curve above PPF - economic growth

Curve below PPF - Economic decline

point below PPF - inefficient allocation of resources

point above PPF - can not be achieved with current resources

Question 12

What are capital goods?

Answer 12

E.g Machinery can be used to produce additional goods

Question 13

What are consumer goods

Answer 13

goods that are used up/consumed