Introduction to Economics

Question 1

What is Economics? (2)

Answer 1

1. How do we, as a species and the sub-units thereof, provide for ourselves the means of subsistence?
2. How do we use the available resources? (What do we produce, how do we produce it and who gets it?)

Question 2

What is Microeconomics? (4)

Answer 2

Microeconomics considers the ‘small’ scale:

• individual consumers
• employees
• companies
• markets and their interactions

The demarcation is not exact - suppose we consider the recently announced changes to the future regulations concerning car propulsion; the analysis of a specific rule in the market for a particular good/service can be conducted using the tools of Microeconomics, but consequences for supply chains, transport availability and fuel prices are likely to have Macroeconomic implications also.
Some phenomena are ‘Macro’ by definition, e.g. inflation or recession.

Question 3

Economics vs Chemistry (7)

Answer 3

• Attempt to explain aspects of objective reality
• Scientific, in that we endeavour to eliminate errors
• Use models (mathematical and visual) to help us think
• ‘Uniformity of nature’ does not apply to Economics
• Hence there are no universal laws in Economics
• Humans both react to and create their environment, including social institutions
• Economics involves ethical judgements and ‘political’ opinions

Question 4

Subsistence (definition)

Answer 4

the action or fact of maintaining or supporting oneself, especially at a minimal level:

“the minimum income needed for subsistence”

Question 5

Models in Economics (4)

Answer 5

• Abstraction and simplification allow us to reduce real problems down to a comprehensible level of complexity.
• The choices we make concerning abstraction and simplification are motivated by the use to which we intend to apply the model.
• Mostly we will use visual and mathematical models (but also verbal ’models’).
• A model that is useful for the analysis of one problem will not necessarily be applicable or useful in relation to other problems.

Question 6

Abstraction (definition)

Answer 6

the quality of dealing with ideas rather than events

Question 7

Demarcation (definition)

Answer 7

the action of fixing the boundary or limits of something

Question 8

Price/Value (definition)

Answer 8

What determines the price at which a good or service is exchanged?

Question 9

Maritime (definition)

Answer 9

connected with the sea, especially in relation to seaborne trade or naval matters

Question 10

Supply Chain (definition)

Answer 10

the sequence of processes involved in the production and distribution of a commodity.

Question 11

Markets (1 definition + 5 examples)

Answer 11

Any place where two or more parties can meet to engage in an economic transaction

• Auctions
• the stock market
• a shop
• websites
• the labour market etc.

Question 12

What is The Invisible Hand?

Answer 12

When we go to a supermarket and buy food for the week, it is the final stage of a production and distribution process that has involved the co-ordinated labour of hundreds, perhaps thousands of people, all around the world.
Who plans this process?

Question 13

Market Failure - Monopoly?

Example?

Definition?

Answer 13

Google was fined five billions of euros by the EU, for anti-competitive practices.

the exclusive possession or control of the supply of or trade in a commodity or service

Question 14

Opportunity Cost

Answer 14

Whenever we choose to use a scarce resource for a particular purpose
we forego the outcomes of the other uses to which we could have put that resource. This might not involve any monetary cost, but nonetheless it is important to consider.