Definitions

Question 1

Rational choice

Answer 1

Compares costs and benefits and achieves the greatest benefit over cost for the person making the choice.

Question 2

Opportunity cost

Answer 2

The highest valued alternative that we give up to get or do something

Question 3

Positive statement

Answer 3

A statement of fact that can be tested and may be right or wrong.

Question 4

Normative statement

Answer 4

A statement of what ought to be and cannot be tested.

Question 5

Economics

Answer 5

The study of how individuals and societies use limited resources to satisfy unlimited wants.

Question 6

Factors of production

Answer 6

Land. Labour. Capital. Enterprise.

Question 7

Trade off

Answer 7

And exchange, giving up one thing to get another.

Question 8

Big trade off

Answer 8

Equality vs efficiency.

Question 9

PPF

Answer 9

The boundary between combinations of goods and services that can be produced and those that cannot given the available resources and technology.

Question 10

Allocative efficiency

Answer 10

A state of the economy in which production is aligned with consumer preferences. At output level where price equals marginal cost.

Question 11

Productive efficiency

Answer 11

A situation in which the economy or economic system operating within the constraints of current industrial technology cannot increase production of one good without sacrificing production of another good.

Question 12

Marginal cost of a good

Answer 12

The opportunity cost of producing one more unit.

Question 13

Marginal benefit of a good or service

Answer 13

Benefit received from consuming one more unit of it.

Question 14

The principle of decreasing marginal benefit.

Answer 14

The more we have of any good, the smaller is its marginal benefit and the less we are willing to pay for an additional unit of it.

Question 15

Comparative advantage

Answer 15

A person has comparative advantage in an activity if that person can perform the activity at a lower opportunity cost than anyone else.

Question 16

Absolute advantage

Answer 16

A person has absolute advantage if that person is more productive than others.

Question 17

A firm

Answer 17

An economic unit that hires factors of production and organises those factors to produce and sell goods and services.

Question 18

A market

Answer 18

Any arrangement that enables buyers and sellers to get information and do business with each other.

Question 19

Property rights.

Answer 19

The social arrangements that govern ownership, use and disposal of resources, goods or services.

Question 20

Money

Answer 20

Any commodity or token that is generally acceptable as a means of payment.

Question 21

A competitive market

Answer 21

Has many buyers and sellers, both are price takers, the marketed product needs to be scarce for a price to emerge and the seller has to have property rights in the product and be legal allowed to transfer ownership.

Question 22

Relative price

Answer 22

The ratio if it’s money price to the money price of the next best alternative- opportunity cost.

Question 23

Demand…

Answer 23

If you demand something you want it, can afford it, plan to buy it.

Question 24

Quantity demanded

Answer 24

The amount consumers plan to buy during a particular time period at a particular price.

Question 25

The law of demand

Answer 25

Other things remaining the same, when the price of a good rises, the quantity demanded of the good decreases; and when the price falls, the quantity demanded increases.

Question 26

The substitution effect

Answer 26

When relative price of a good or service increases, individuals seek substitutes for it, so the quantity demanded is reduced.

Question 27

Income effect

Answer 27

When the price of a good or service increases relative to income, individuals overall real purchasing power falls, so that quantity demanded is likely to be reduced for this reason too.