Economics

Question 1

economics

Answer 1

study of how society chooses to allocate its scarce land, labour and capital resources to the production of goods and services to satisfy the population’s needs and unlimited wants

Question 2

needs

Answer 2

something essential for a person’s survival and are limited

Question 3

wants

Answer 3

a desire that is not essential for survival and are unlimited

Question 4

definition of factors of production (economic resources)

Answer 4

inputs that are used in production of goods and services

Question 6

land

Answer 6

any natural resource provided by nature used in the process of production (wood, iron, oil)

Question 7

labour

Answer 7

mental and physical capacity of workers to produce goods and services (plumbers, teachers)

Question 8

capital

Answer 8

man made tools, machinery and equipment used in production of goods and services (trucks, hammers)

Question 9

enterprise

Answer 9

entrepreneurship

Question 10

three main ideas that form the foundation of economics

Answer 10

scarcity, choice and opportunity cost

Question 11

scarcity

Answer 11

we have unlimited wants, however we have limited resources (fundamental challenge of meeting unlimited human wants and needs with limited land, labour and capital resources)_

Question 12

what must people do because of scarcity

Answer 12

make choices!!

Question 13

choice

Answer 13

an economic decision made between competing alternatives

Question 14

opportunity cost

Answer 14

the choice that you make will come at a price, and that is opportunity cost. The loss of the value of the next best alternative forgone whenever an economic decision is made

Question 15

production possibilites model

Answer 15

a simple economic tool used to illustrate the trade offs that exist when an economy decides what goods to produce

Question 16

2 assumptions that the PPM makes

Answer 16

1. that an economy can only produce two different goods or services
2. that all scarce resources are being fully utilised

Question 17

what is the PPM represented by

Answer 17

a graph called the production possibility frontier (PPF)

Question 18

whats on the y and x axes of the PPF

Answer 18

each axis has one good and we’ll be given the outputs to make a curve

Question 19

why would the PPF curve move up?

Answer 19

because there are more resources now

Question 20

why would the PPF curve move down?

Answer 20

because there are less resources now

Question 21

opportunity cost through PPF

Answer 21

the OC of spending resources on one good is the amount of the other good that cannot be made

Question 22

behavioural economics

Answer 22

a field of study that combines psychology, economics and neuroscience to better understand how people make decisions in real world situations

Question 23

traditional view of consumer behaviour

Answer 23

that all decisions a consumer makes are rational

Question 24

assumptions of a rational consumer

Answer 24

consumers will always make logical decisions to maximise their satisfaction and is always for themselves

Question 25

bounded rationality definition

Answer 25

concept that suggests that people have limited rationality and make decisions based on a limited set of information and cognitive abilities that often rely on mental shortcuts to simplify complex decision making

Question 26

types of bounded rationality in decision making (5)

Answer 26

herd behaviour, vividness, framing effect, anchoring bias, sunk cost fallacy

Question 27

sunk cost fallacy

Answer 27

where people keep investing because they have already been investing

Question 28

bounded willpower

Answer 28

the idea that consumers are impulsive and emotional

Question 29

bounded self interest

Answer 29

idea that consumers care about others and not just themselves

Question 30

macroeconomics

Answer 30

branch of economics that looks at the big picture of the economy as a whole – looks at the overall performance of of a country

Question 31

inflation

Answer 31

the cost of living – if goods and services go up, you get less for your money

Question 32

economic activity

Answer 32

the overall level of production and consumption of goods and services in an economy over a certain period of time

Question 33

what does high economic activity indicate

Answer 33

that people are spending money and that the economy is growing

Question 34

what does low economic activity indicate

Answer 34

indicates the economy is experiencing slow growth

Question 35

what is the economic cycle

Answer 35

production – more employment – more wages – more purchasing power – more production

Question 36

types of living standards (2)

Answer 36

material and non material

Question 37

whats the current inflation rate of australia

Answer 37

4%

Question 38

consequences of inflation

Answer 38

reduced purchasing power and the wage-price spiral

Question 39

reduced purchasing power

Answer 39

high inflation = increase of price of goods and services = people cant buy as much = decrease in standard of living

Question 40

wage price spiral

Answer 40

high inflation = loss of purchasing power = higher wage demands = cost of labour goes up = increase prices = inflation

Question 41

causes of inflation (2)

Answer 41

excessive spending in the economy and costs of production

Question 42

what is a policy used to decrease inflation

Answer 42

interest rate

Question 43

what is an interest rate

Answer 43

the cost of borrowing money

Question 44

trade

Answer 44

the buying and selling of goods and services across international boundaries

Question 45

imports

Answer 45

the things that the country buys

Question 45

exports

Answer 45

the things that the country sells

Question 46

free trade

Answer 46

the absence of gov intervention in international trade (unrestricted trade)

Question 47

benefits of free trade (4)

Answer 47

increased competition, specialisation, greater choice for consumers, increased flow of new ideas and tech

Question 48

increased compeition

Answer 48

means lowered prices

Question 49

absolute advantage

Answer 49

ability of one country to produce a good using fewer resources than another country

Question 50

theory of absolute advantage

Answer 50

since a country is better than the others, it leads to increased material living standards

Question 51

negatives of free trade

Answer 51

increased unemployment, infant industries cannot develop, predatory pricing and loss of culture

Question 52

increased unemployment

Answer 52

domestic companies shut down because the companies overseas are better and cheaper

Question 53

predatory pricing

Answer 53

where they lower the prices at the right time and raise it on others