Chapter 1

Question 1

What is economics?

Answer 1

Economics is the study of the allocation of our scarce resources to satisfy our unlimited wants

Question 2

The scarce resources used in the production of goods and services are

Answer 2

• Land
• Labour
  -Capital
  -Entrepreneurship (Enterprise)

Question 3

Macroeconomics

Answer 3

Macroeconomics deals with the aggregate, or total, economy

Question 4

Microeconomics

Answer 4

Microeconomics focuses on smaller units within the economy.

Question 5

What are economic theories?

Answer 5

Statements or propositions about patterns of human (economic) behaviour that are expected to take place under certain circumstances

Question 6

Empirical analysis

Answer 6

Examines data to see if the hypothesis fits well with the facts

Question 7

Ceteris paribus

Answer 7

• Holding everything else constant
• It means isolating a variable to assess its effect

Question 8

The fallacy of composition

Answer 8

The incorrect view that what is true for the individual is also true for the group

Question 9

Positive analysis

Answer 9

an objective, value-free approach, utilizing the scientific method

Question 10

Normative analysis

Answer 10

a subjective, biased approach

Question 11

Scarcity

Answer 11

Our wants exceed our limited resources.It forces us to make choices

Question 12

Goods

Answer 12

Physical, tangible items that we value or desire

Question 13

Services

Answer 13

Intangible acts for which people are willing to pay(legal services, medical advice, cleaning etc.)

Question 14

opportunity cost

Answer 14

The highest or best forgone opportunity resulting from a decision

Question 15

Marginal cost

Answer 15

The change in total costs resulting from a one-unit change in output

Question 16

The rule of rational choice

Answer 16

Individuals will pursue an activity if the expected marginal benefits are greater than the expected marginal costs.

Question 17

Positive incentive

Answer 17

Incentives that either reduce costs or increase benefits, resulting in an increase in the activity or behaviour

Question 18

Negative incentive

Answer 18

Incentives that either increase costs or reduce benefits, resulting in a decrease in the activity or behaviour

Question 19

Specializing

Answer 19

Concentrating on the production of one, or a few, goods or services

Question 20

Comparative advantage

Answer 20

When a person or a country can produce a good or service at a lower opportunity cost than others can

Question 21

Three economic questions

Answer 21

1. What is to be Produced?
2. How are the goods and services to be produced?
3. Who will get the goods and services?