Chap 1

Question 1

Define econ

Answer 1

Economics is a social science which studies about efficient allocation of scarce resources so as to attain the maximum fulfillment of unlimited human needs

Question 2

whats the basic problem of economy

Answer 2

Scarcity and choice

Question 3

whats the scope of economics

Answer 3

industrial econ, transport econ, welfare econ , environmental econ,

Question 4

By how many branches is the core of economy formed and what are they?

Answer 4

Its formed by 2 major branches : macroeconomics and microeconomics

Question 5

Define Microeconomics

Answer 5

Microeconomics is concerned with the economic behavior of individual decision making units such as households, firms, markets and industries.

Question 6

Define macroeconomics

Answer 6

its a branch of economics that deals with the
effects and consequences of the aggregate behavior of all decision making units in a certain economy.

Question 7

By how many perspectives can economics be analyzed and what are they ?

Answer 7

economics can be analyzed from two perspectives: positive economics and normative economics.

Question 8

Def Positive econ + ex

Answer 8

it is concerned with analysis of facts and attempts to
describe the world as it is.
The life expectancy at birth in Ethiopia is rising.

Question 9

def normative econ + ex

Answer 9

its a perspective on economics that makes recommendations and that is not based on facts
It deals with the questions like, what ought to be? Or what the economy should be?
ex: The poor should pay no taxes.

Question 10

what is the fundamental objective of economics?

Answer 10

The fundamental objective of economics, is the
establishment of valid generalizations about certain aspects of human behavior.

Question 11

what are the 2 methods of logical reasoning ?

Answer 11

inductive and deductive

Question 12

def inductive reasoning

Answer 12

its a logical method of reaching at a correct
general statement or theory based on several independent and specific correct statements.

Question 13

What are the steps for inductive method

Answer 13

1. selecting problem for analysis
2. collection , classification, and analysis of data
3. Establishing cause and effect relationship between economic phenomena

Question 14

Def deductive reasoning

Answer 14

its a logical way of arriving at a particular or
specific correct statement starting from a correct general statement.

Question 15

What are the steps in deductive reasoning

Answer 15

1. problem identification
2. specification of the assumptions
3. formulating hypotheses
4. testing the validity of the hypotheses

Question 16

Define scarcity

Answer 16

refers to the quantity preferred of a particular resource exceeding the quantity available so to balance unlimited wants with limited resources economics has emerged to allocate economic resources efficiently.

Question 17

what are the 3 important questions in that economy helps to solve ?

Answer 17

what , how and for whom to produce?

Question 18

define choice?

Answer 18

it involves sacrifice and the choosing of the better alternative since the more food gets produced the less resources there will for the production of other goods

Question 19

Def opportunity cost

Answer 19

its the cost of any activity measured in terms of the best alternative forgone.

Question 20

how many categories of economic resources are there and what are they ?

Answer 20

There are 4:
1. Labor: wage
2. Land: rent
3. capital : interest
4. entrepreneurship: profit

Question 21

what is PPF/PPC

Answer 21

Is a curve that shows the various possible combinations of goods and services that the society can produce given its resources and technology within a specified time period.

Question 22

What are the 3 concepts that the PPF describes?

Answer 22

1. The concepts of scarcity : unlimited amount of outputs cannot be reached even if all resources are utilized in the best possible way.
2. the concepts of choice: when theres a change in choice, there is a movement of the curve
3. the concept of opportunity of cost: he production of one good requires the sacrifice of another, its shown on the downward sloping PPF

Question 23

Whats the law of increasing opportunity cost ?

Answer 23

This law states that as we produce more and more of a product, the opportunity cost per unit of the additional output increases.

Question 24

what the formula of opportunity cost of a good?

Answer 24

OC= the amount of the next best alternative sacrified / the amount of the good gained

Question 25

When does an economic growth occur?

Answer 25

if :
1. Increase in the quantity or/and quality of economic resources.
2.Advances in technology.

Question 26

Def economic system ?

Answer 26

its a set of organizational and institutional
arrangements established to answer the basic economic questions.

Question 27

How does capitalist economy work?

Answer 27

In this economic system, all means of production are privately owned, and production takes place at the initiative of individual private entrepreneurs who work mainly for private profit.

Question 28

How does command economy work?

Answer 28

Under this economic system, the economic institutions that are engaged in production and distribution are owned and controlled by the state.

Question 29

How does mixed economy work?

Answer 29

it is an attempt to combine the advantages of both the capitalistic economy and the command economy.

Question 30

What are the 3 decision making units in a closed economy ?

Answer 30

households , firms and the government

Question 31

what are the 2 markets that the 3 economic agents interact in?

Answer 31

Product market and factor market

Question 32

What’s product market

Answer 32

it is a market where goods and services are exchanged

Question 33

What’s factor market

Answer 33

In this market, owners of resources (households) sell their resources to business firms and governments

Question 34

What’s the circular flow diagram

Answer 34

its a visual model of the economy that shows how money (Birr), economic resources and goods and services flows through markets among the decision making units.