Economics priciples and Thinking as an Economics

Question 1

What trade-off mean?

Answer 1

A trade-off involves a sacrifice that must be made to get a certain product or service (the choices sacrificed).

Question 2

What is opportunity cost?

Answer 2

Oppurtunity cost is the value of the most preferred second best alternative. Opportunity cost is the forgone benefit that would have been derived by an option not chosen.

Question 3

What does the Production Possibility Frontier (PPF) shows?

Answer 3

The PPF shows the maximum possible output combinations of two goods or services when all resources are fully and efficiently employed.

Question 4

When a point will be inside of the PPF curve?

Answer 4

When resources are not used efficiently or are unemployed.

Question 5

When a point will be outside the PPF curve?

Answer 5

Point out of the curve cannot be obtained at that point in time.

Question 6

What is the opportunity cost of increasing the production salt over the production of barley?

Answer 6

The opportunity cost is the cost give up of barley in order to produce the extra unit of salt.

Question 7

What is a rational decision?

Answer 7

Decision made when the marginal benefit surpasses the marginal cost. Will be the output exceed the cost?

Question 8

What is total utility?

Answer 8

Quantifiable satisfaction (utility) obtained from consuming multiple units of a product or service.

Question 9

What is the marginal utility?

Answer 9

Qauntifiable additional satisfaction (utility) derived from consuming an additional unit of a product or service.

Question 10

What does the Law of Diminishing Marginal Utility says?

Answer 10

It says that when consuming of a same product or service increases, the less will be its marginal utility (less additional satisfaction).

Question 11

An increase in additional unit consumed will result in?

Answer 11

It will slow the rate at which total utility grows.

Question 12

What is a factor of production?

Answer 12

Resources used for production.

Question 13

What are the types of factors of production?

Answer 13

Land, Capital, Labour and Enterprise.

Question 14

What is the land factor of production?

Answer 14

Natural resources obtained through the land used for the production of product or services.

Question 15

What is the capital factor of production?

Answer 15

Tools, plants, and equipment for production (e.g. hammers, tractors, trucks and factoty).

Question 16

What is the labour factor of production?

Answer 16

Labour refers to the effort expended by an individual to bring a product or service to the market.

Question 17

What is the enterprise factor of production?

Answer 17

Enterprise is the factor of production that organises the other factors of production into a production unit to produce a good/service.

Question 18

What is an incentives?

Answer 18

Incentives are financial motivations for people to take certain actions.

Question 19

How is trade seen?

Answer 19

Specialisation and trade can make two economic agents both better off.

Question 20

What is a market?

Answer 20

A market is a place where two buyers and sellers can exchange goods and services.

Question 21

Adam Smith in “The Wealth of

Nations (1776)” stated that…

Answer 21

Market economy is regulated by an invisible hand (self regulated) by the incentives of price.

Question 22

Increase in price cause demand to…

Answer 22

reduce.

Question 23

Decrease in price cause demand to

Answer 23

increase.

Question 24

Decrease in price cause supply to

Answer 24

decrease.

Question 25

Increase in price cause supply to

Answer 25

increase.

Question 26

What is equilibrium price?

Answer 26

Equilibrium price is the price where quantity demanded (amount consumers want to buy of the product), is equal to quantity supplied (amount producers want to sell).

Question 27

Why do government interfere in the market?

Answer 27

To prevent market failure.
Stimulate economic growth in a period of a recession.
Keep inflation low (the UK government has a target of 2%)
To stabilise economic growth, avoiding a boom and bust economic cycle.

Question 28

What are fiscal policies?

Answer 28

Government changing the levels of taxation and government spending in order to influence aggregate demand (AD) and the level of economic activity.

Question 29

Countries with higher production have…

Answer 29

higher incomes.

Question 30

What are the factors influencing productivity?

Answer 30

Technical, production, organizational, personal, finance, management, government and location.

Question 31

Why prices rise when the government prints

too much money?

Answer 31

If more money are printed there will be more money in circulation chasing few goods which result in an increase in inflation (purchasing power of money decreases).

Question 32

What does the Phillips curve shows?

Answer 32

When unemployment decrease, iflation (too much money chasing few goods=decrease in money purchasing power) will increases and viceversa.

Question 33

What do economics do?

Answer 33

Economists observe economic situations.

Question 34

What is economics?

Answer 34

Economics is a social science.

Question 35

What are the objective steps taken when economics observe economic situations?

Answer 35

1. Observation
2. Questioning why it is happening
3. Making assumptions/hypothesis
4. Data collection
5. Testing of hypothesis
6. Conclusions and formulation of theory and law Prediction.

Question 36

Where are economic theories considerate accepted?

Answer 36

Accepted theories are repeatedly tested by experiments and can be used for predictions.

Question 37

What is an economic model?

Answer 37

An economic model is a simplified version of reality that allows us to observe, understand, and make predictions about economic behavior.

Question 38

What is a factor market?

Answer 38

It is where businesses buy factor of production (input) from households

Question 39

What is a product market?

Answer 39

It is where households buy good and services from businesses

Question 40

What cause movement between price and demand curve?

Answer 40

Demand is affected only by the price and vice versa. A movement refers to a change along a curve. On the demand curve, a movement denotes a change in both price and quantity demanded from one point to another on the curve.

Question 41

What cause shift between price and demand?

Answer 41

Demand and price are affected by an external factor.

Question 42

What a shift inwards means in the PPF?

Answer 42

The curse moves to the left (e.g in the PPF less it’s produced).

Question 43

What a shift outwards means in the PPF?

Answer 43

The curve moved to the right (e.g. in the PPF more it’s produced).

Question 44

When an economic offers advise and opinions is a…

Answer 44

policy advisor.

Question 45

What are positive statement?

Answer 45

Positive statements are objective statements that can be tested, amended or rejected by referring to examination/analysis of evidence/data

Question 46

What are normative statements?

Answer 46

Normative statements are value judgements which are subjective statement of opinion that require ethics and stardards to be proven right.

Question 47

What is a proportional tax system?

Answer 47

All taxpayers pay the same fraction of their income, regardless of how much money they earn. The tax rate doesn’t change as income increases (or decreases).

Question 48

What is a progressive tax system?

Answer 48

Taxes assessed based on the taxable amount of an individual’s income. High-income earners pay more than low-income earners.

Question 49

What is a regressive tax system?

Answer 49

Taxes are assessed regardless of income, in which low- and high-income earners pay the same amount. Negative impact for low income individual whom the same amount of money equates to a much larger percentage of total income earned.