Economics and the Economy Key terms

Question 1

Economics

Answer 1

is the study of how society decides what, how and for whom to produce.

Question 2

A resource is scarce if..

Answer 2

the demand at a zero price would exceed the available supply.

Question 3

The income distribution (in a country or in the world) tells us how..

Answer 3

total income is divided between different groups or individuals.

Question 4

The law of diminishing returns says..

Answer 4

each extra worker adds less to output than the previous extra worker added.

Question 5

Production efficiency means..

Answer 5

more output of one good can be obtained only by sacrificing output of other goods

Question 6

The ‘invisible hand’ is the assertion that…

Answer 6

the individual pursuit of self-interest within free markets may allocate resources efficiently from society’s viewpoint.

Question 7

In a mixed economy the government and private sector..

Answer 7

jointly solve economic problems. The government influences decisions through taxation, subsidies and provision of free services, such as defence and the police. It also regulates the extent to which individuals may pursue their own self-interest.

Question 8

Microeconomics

Answer 8

offers a detailed treatment of individual decisions about particular commodities.

Question 9

Macroeconomics

Answer 9

emphasizes interactions in the economy as a whole. It deliberately simplifies the individual building blocks of the analysis in order to retain a manageable analysis of the complete interaction of the economy.

Question 10

Gross domestic product

Answer 10

is the value of total output of an economy in a given period.

Question 11

The aggregate price level

Answer 11

measures the average price of goods and services.

Question 12

The unemployment rate

Answer 12

is the fraction of the labour force without a job but looking for work.