Introduction To Economics

Question 1

The Economic Problem

Answer 1

how to satisfy unlimited needs and wants with scarce or limited resources

Question 2

Needs

Answer 2

goods and services that are essential for survival (food, shelter, clothing, healthcare

Question 3

Wants

Answer 3

the material desires of individuals that provide satisfaction when consumed

Question 4

Opportunity Cost

Answer 4

What is sacrificed/What is gained

Question 5

PPF four key assumptions

Answer 5

The economy only produces two goods

The state of technology remains constant

The quantity of resources remains unchanged

All resources are fully employed

Question 6

Production of Capital Goods =

Answer 6

Increased Future Output

Question 7

Production of Consumer Goods =

Answer 7

Decreased Future Output

Question 8

Consumer goods

Answer 8

goods that satisfy consumer demands immediately

Question 9

Capital Goods

Answer 9

goods that will increase productive capacity in the future

Question 10

Resources

Answer 10

anything that can be used to produce a good or provide a service

Question 11

Land

Answer 11

all natural resources, living and non-living. Reward = Rent

Question 12

Labour

Answer 12

all forms of human effort used in the production process. Reward = Wages

Question 13

Capital

Answer 13

all manufactured goods used in the production process. Reward = Interest

Question 14

Enterprise

Answer 14

the ability to combine the FOP to produces a good or service, carried out by entrepreneurs. Reward = Profit

Question 15

Gross Domestic Product

Answer 15

total amount of goods and services produced in a society

Question 16

Advantages of a Market Economy

Answer 16

provides incentives for people to obtain better skills and work harder

Question 17

Disadvantages of a Market Economy

Answer 17

unfair for those who are unable to contribute to production due to illness, age or disability

Question 18

Money

Answer 18

a medium for exchanging goods & services

Question 19

Bartering

Answer 19

The non-cash exchange of goods and services

Question 20

The Business Cycle

Answer 20

the fluctuations in the level of growth in an economy over a period of time

Question 21

Stages of the Business Cycle

Answer 21

Upswing/Expansion

Boom/Peak

Downswing/Contraction

Recession/Trough

Question 22

Quality of Life is measured by

Answer 22

Income

Health

Education Levels

Consumer Goods

Leisure Time

Question 23

The Five Sectors of the Circular Flow of Income

Answer 23

Households

Businesses

Financial

Government

International

Question 24

Leakage

Answer 24

A withdrawal of money from the circular flow - decreases economic activity (savings, taxation, imports)

Question 25

Injection

Answer 25

the addition of money to the circular flow - increases economic activity (investment, government spending, exports)

Question 26

Equilibrium

Answer 26

a situation in the economy when there is no tendency to change

Question 27

When does equilibrium occur?

Answer 27

Equilibrium occurs when leakages are equal to injections: S+T+M=I+G+X

Question 28

Economic System

Answer 28

The way in which a country organises the production of its goods & services, the allocation of resources and the distribution of income

Question 29

Questions that Determine the Economic System

Answer 29

What to produce? How much to produce? How to produce? For whom to produce?

Question 30

Types of Economic Systems

Answer 30

Market Economy Planned Economy Mixed Market Economy

Question 31

Characteristics of a Market Economy

Answer 31

Individuals and businesses make all the economic decisions There is minimal or no government involvement The “price mechanism” (supply & demand) determines the price and quantity of goods & services Businesses decisions are driven by the “profit motive” Consumer decisions are driven by self-interest Resources are privately owned - the owners of the resources receive income

Question 32

Characteristics of a Planned Economy

Answer 32

The “state” (government) makes the major economic decisions Central planning authorities determine the types of goods produced, quantity and price by setting output targets There is public ownership of resources which are allocated by the government Majority of businesses are state-owned Limited economic freedom for businesses and individuals

Question 33

Characteristics of a Mixed Market Economy

Answer 33

A mixed market economy is one where the decisions concerning production and distribution are made by a combination of market forces and government decisions Individuals and businesses make most of the economic decisions

Question 34

How does the government intervene in a market economy?

Answer 34

Regulates some of the economic decisions of businesses and consumers Provides collective goods & services Redistributes income through taxation & transfer payments Stabilises economic activity