Economics

Question 1

Five key concepts

Answer 1

Scarcity
Trade offs
Incenstives
Marginal Analysis
Optimising choices and their outcome (equilibrium)

Question 2

What is Scarcity

Answer 2

the desire for something exceeds what is available so we have to choose where they go

Question 3

Trade Offs

Answer 3

Due to scarcity we have to make trade offs

Question 4

oppurtunity cost

Answer 4

The benefit you give up when you choose one option over another

Question 5

Marginalism

Answer 5

Focuses on the effects of small changes in economics variables such as price quality or time

Question 6

Efficient Market

Answer 6

A market in which profit opportunities are eliminated almost instantaneously

Question 7

Slope Equation

Answer 7

change in Y / change in X = (y2-y1) / (m2-m1)

Question 8

production

Answer 8

the process of transforming scarce reosurces into useful goods or services

Question 9

inputs

Answer 9

the reousrces or facors of production that go into the process of production

Question 10

outputs

Answer 10

goods and services of value to households that come out of production

Question 11

Theory of competitive advantage

Answer 11

Specialization and free trade will benefit all trading parties even those that may be absolutely more efficient producers

Question 12

Absolute advantage

Answer 12

A producer has an absolute advantage in the production of a good or service if he or she can produce that product using fewer resources

Question 13

Comparative advantage

Answer 13

A country should specialize in producing goods and services in which it has a lower opportunity cost compared to other countries.

Question 14

Consumer goods

Answer 14

goods produced for presetn consumption

Question 15

The marginal transformation

Answer 15

The slope of the production possibility frontier

Question 16

Consumer Soverignty

Answer 16

The idea that consumers ultimately dictate what will be produced or not by choosing what to buy and what not to

Question 17

equillibirum (in perfect comeptition market)

Answer 17

where price = marginal cost

Question 18

choice set or oppurtunity set

Answer 18

the set of options that is defined and limited by the budget constraint

Question 19

Budget Constraint

Answer 19

Price of good x quantity of good x + price of y and quantity of y = household income

Question 20

Utility

Answer 20

The satisfaction a product gives

Question 21

law of diminishing marginal
utility

Answer 21

The more of any one
good consumed in a given
period, the less satisfaction
(utility) generated by consuming
each additional (marginal) unit
of the same good.

Question 22

Marginal Utility

Answer 22

The additional satisfaction gained by the consumption or use of one more unit of a good or service

Question 23

the utility-maximizing rule

Answer 23

Marginal utility of good x / price of good x = marginal utility of good y / price of good y

Question 24

The income effect

Answer 24

The change in consumption of an output that occurs when a consumers income changes, holding prices constant

Question 25

the labour supply curve

Answer 25

A graph that illustrates the amount of labor that households want to supply at each given wage rate.

Question 26

indifference curves

Answer 26

A set of points each point representing a combination of goods x and y all of which have the same utility

Question 27

utility maximising rule

Answer 27

Marginal utility of x / price of x = marhinal utility of y / price of y

Question 28

what happens to a graph when the price of a good is lowered

Answer 28

lowering the price of a good expands the oppurtunity set and expands the budget constraint to the right

Question 29

The marginal rate of transfromation

Answer 29

that measures the rate at which one good must be sacrificed to produce an additional unit of another good

Question 30

Marginal Rate of transformation equation

Answer 30

change in the quantity of good y / change in quantity of good x

Question 31

marginal analysis

Answer 31

weighing the costs and benefits that change as a result of choice

Question 32

marginal benefit

Answer 32

the additional satisfaction or utility a consumer derives from consuming one more unit of a good or service

Question 33

sunk costs

Answer 33

irreversible cost that have already been incurred

Question 34

Diamond water paradox

Answer 34

the things that have the greatest value in use have frequently little or no value in exchange. and those that have greatest value in exchange have little use e.g diamond and water

Question 35

economic models

Answer 35

simplified variables of reality used to analyse real-world economic situations

Question 36

economic variables

Answer 36

something measurable that relates to resources that can have different values

Question 37

Property rights

Answer 37

the right to use the good the right to earn income from the good the right to transfer the good to others who can use

Question 38

what makes a market the most efficent

Answer 38

all information, including private information is reflected in current prices (insider trading is ineffective)

Question 39

price mechanism

Answer 39

the system in the free market where price changes lead to producers changing production in accordance with the level of consumer demand

Question 40

free market

Answer 40

individuals and businesses have the freedom to make their own economic decisions with minimla government interaction

Question 41

perfect market

Answer 41

an idealised theoretical market that assumes certain conditions are met

Question 42

competitve market

Answer 42

many firms, selling identical products to many consumers

Question 43

perfectly competitive market

Answer 43

also have free entry/exist abd particpants who have perfect information

Question 44

pareto efficency

Answer 44

economy is operating at a point wher no one can be made better off without harming someone else

Question 45

fallacy of composition

Answer 45

when on assumes that what is true for a part as also true for a whole

Question 46

fallacy of inductive reasoning

Answer 46

when a conclusion is drawn from limited number of observations also known as overgeneralisation

Question 47

normative economics

Answer 47

subjective/judgement about what the economy should look like. making value judgements about economic policies and outcomes often based on thical moral beliefs

Question 48

post hoc ergo promoter hoc fallacy

Answer 48

when someone assumes that because one event follows another the first event must have caused the second

Question 49

positive economics

Answer 49

describes economic phenomena without making value judgements

Question 50

development economics

Answer 50

looks at the development of devloping countries

Question 51

experimental economics

Answer 51

uses experiments to test economic theories

Question 52

normal good

Answer 52

when your income increases you demand more

Question 53

inferior good

Answer 53

when your income increases you demand less

Question 54

income effect

Answer 54

as the price of a good rise the purchasing power of the consumer's real income becomes less

Question 55

subsititution effect

Answer 55

if price goes up you buy less of the good in favour for cheaper alternatives

Question 56

complementary good

Answer 56

When the price of one complementary good increases, the demand for the other good decreases.

Question 57

when is a price ceiling effective

Answer 57

when it is set below the equilibrium