Micro 1.1

Question 1

What does ceteris paribus mean in economics?

Answer 1

Other things being equal or constant, so nothing else changes.

Question 2

What is the difference between positive and normative statements?

Answer 2

Positive statements are objective and can be tested, while normative statements are subjective and based on opinion.

Question 3

Identify a key characteristic of positive statements.

Answer 3

They can be tested with factual evidence.

Question 4

True or False: Normative statements can be rejected or accepted based on evidence.

Answer 4

False

Question 5

What is the basic economic problem?

Answer 5

Scarcity.

Question 6

Define opportunity cost.

Answer 6

The value of the next best alternative forgone.

Question 7

What are the factors of production represented by the acronym CELL?

Answer 7

• Capital
• Entrepreneurship
• Land
• Labour

Question 8

What is the reward associated with capital as a factor of production?

Answer 8

Interest from the investment.

Question 9

Fill in the blank: Renewable resources can be replenished, so the stock level of the resources can be maintained over a period of time, such as _______.

Answer 9

[oxygen, fish, solar power]

Question 10

What happens to non-renewable resources over time?

Answer 10

The stock level decreases as it is consumed.

Question 11

What do production possibility frontiers (PPFs) depict?

Answer 11

The maximum productive potential of an economy using a combination of two goods or services.

Question 12

What does the law of diminishing returns state?

Answer 12

The opportunity cost of producing more of one good increases in terms of the lost units of another good.

Question 13

What does it mean when the PPF shifts outward?

Answer 13

The productive potential of the economy increases, indicating economic growth.

Question 14

What is specialisation in economics?

Answer 14

When each worker completes a specific task in a production process.

Question 15

List two advantages of specialisation.

Answer 15

• Higher output
• Potentially higher quality

Question 16

What is one disadvantage of specialisation?

Answer 16

Work becomes repetitive, potentially lowering motivation.

Question 17

What are the main functions of money?

Answer 17

• Medium of exchange
• Measure of value (unit of account)
• Store of value
• Method of deferred payment

Question 18

Define a free market economy.

Answer 18

An economy where governments leave markets to their own devices, allowing supply and demand to allocate resources.

Question 19

Who are two famous economists associated with free market economies?

Answer 19

• Adam Smith
• Friedrich Hayek

Question 20

What is a command economy?

Answer 20

An economy where the government allocates all scarce resources according to perceived needs.

Question 21

True or False: In a free market economy, public goods are adequately provided.

Answer 21

False

Question 22

What can cause the PPF curve to shift inwards?

Answer 22

A decrease in the quality or quantity of resources.

Question 23

What is the opportunity cost of producing 100 units of cheese if it means only 40 units of yoghurt can be produced?

Answer 23

50 units of yoghurt.

Question 24

What are demerit goods?

Answer 24

Goods that have large negative externalities, such as tobacco.

Overconsumption of these goods can lead to societal harm.

Question 25

What are public goods?

Answer 25

Goods not provided in a free market, such as national defence. ## Footnote These goods are typically funded and provided by the government.

Question 26

What are merit goods?

Answer 26

Goods that are underprovided in a free market, such as education. And have positive externalities. ## Footnote These goods are often subsidized to increase access.

Question 27

What is a command economy?

Answer 27

An economy where the government allocates all scarce resources based on perceived needs. ## Footnote Also referred to as central planning.

Question 28

Who argued for the common ownership of the means of production?

Answer 28

Karl Marx. ## Footnote He criticized the free market as unstable and exploitative of labor.

Question 29

In a command economy, what determines what to produce?

Answer 29

What the government prefers. ## Footnote This contrasts with a free market where consumer choice drives production.

Question 30

In a command economy, who determines how to produce?

Answer 30

Governments and their employees. ## Footnote This centralizes decision-making about production methods.

Question 31

In a command economy, who decides for whom to produce?

Answer 31

Who the government prefers. ## Footnote This may not reflect consumer demand.

Question 32

List some advantages of a command economy.

Answer 32

* Easier coordination of resources in crises * Compensation for market failure * Reduction of inequality * Prevention of monopoly abuse ## Footnote These advantages focus on stability and welfare.

Question 33

List some disadvantages of a command economy.

Answer 33

* Government failures * Potential misalignment with consumer preferences * Limitations on democracy and personal freedom ## Footnote These disadvantages highlight the risks of central planning.

Question 34

What is a mixed economy?

Answer 34

An economy that combines features of both command and free economies. ## Footnote It is the most common economic system today.

Question 35

How is the market controlled in a mixed economy?

Answer 35

By both the government and the forces of supply and demand. ## Footnote This dual control allows for flexibility and responsiveness.

Question 36

What does the government provide in a mixed economy?

Answer 36

* Public goods (e.g., street lights, roads, police) * Merit goods (e.g., healthcare, education) ## Footnote These provisions help ensure basic needs are met.

Question 37

In a mixed economy, what determines what to produce?

Answer 37

Both consumer and government preferences. ## Footnote This reflects a balance between market demands and regulatory oversight.

Question 38

In a mixed economy, who determines how to produce?

Answer 38

Producers aiming for profit and the government. ## Footnote This allows for innovation while ensuring regulations are met.

Question 39

In a mixed economy, who decides for whom to produce?

Answer 39

Both government preferences and the purchasing power of private individuals. ## Footnote This dual focus helps address inequalities.