Micro Economics 1

Question 1

definition of economics

Answer 1

economics is the study of how best to allocate scarce resources across alternative uses

Question 2

What is a positive statement

Answer 2

They are objective statements and can be tested against evidence to see whether they are true or false
e.g. The earth is flat

Question 3

What is a normative statement

Answer 3

They are subjective statements that contain value judgements and cannot be scientifically tested. They contain opinions and are lacking objectivity
e.g. crisps are tastier than chocolate

Question 4

What statements to economists try to use

Answer 4

Positive
But in reality many of the more interesting questions are normative

Question 5

What is economic activity

Answer 5

It refers to the use of scarce resources in production, exchange, distribution or consumption

Question 6

What is production

Answer 6

It involves the conversion of scarce resources to finished goods and services

Question 7

What is distribution

Answer 7

It is the movement of the raw resources or finished goods and services to points of production and consumption

Question 8

What is exchange

Answer 8

It is any monetary or non-monetary transaction between a producer and a consumer

Question 9

What is consumption

Answer 9

It describes the using up of a good or service by a consumer in order to gain satisfaction

Question 10

What is primary sector activity

Answer 10

The extraction of resources in their rawest forms

Question 11

What is secondary sector activity

Answer 11

The processing and manufacturing of these resources into goods and services

Question 12

What is tertiary sector activity

Answer 12

The provision of services and the distribution and exchange of goods

Question 13

What is the purpose of economic activity

Answer 13

It is the production of goods and services to satisfy the needs and wants of a nations citizens

Question 14

What is a need

Answer 14

It is something that is necessary for survival e.g. food, shelter

Question 15

What is a want

Answer 15

It is something that is desirable but not strictly necessary for survival

Question 16

What is an economic good

Answer 16

It is a good or service that involves scarce resources

Question 17

What is a free good

Answer 17

Any good that involves no scarce resources

Question 18

What sub problems are there to resources scarcity

Answer 18

What to produce
How to produce
For whom to produce

Question 19

What causes resource scarcity

Answer 19

Infinite wants and finite resources

Question 20

What are resources

Answer 20

They are the input or factors of production that are used to produce finished goods and services

Question 21

How are resources categorised

Answer 21

Land - any natural resource
Labour - any human input
Capital - any man made factor of production
Enterprise - The risk taker that organises the other factors of production

Question 22

What is the factor reward for each factor of production

Answer 22

Land - rent
Labour - wages
Capital - interest
Enterprise - profit

Question 23

What is the definition of scarcity

Answer 23

a situation in which there are finite resources but infinite wants

Question 24

What is the definition of economic problem

Answer 24

How to allocate finite resources to meet infinite wants

Question 25

What is Resource allocation

Answer 25

The placement of land, labour, capital and enterprise into competing areas of production in an attempt to maximise social welfare

Question 26

What is opportunity cost

Answer 26

The opportunity cost of any decision is the next best alternative foregone

Question 27

What is the PPF

Answer 27

The Production Possibilities Frontier The line where points of maximum possible outputs lie given the current level of resources and the existing level of technology

Question 28

What does it mean if production is below the PPF

Answer 28

There is less output and there is an under performance and they are being inefficient

Question 29

What does it mean if production is above the PPF

Answer 29

More than the maximum output but it is impossible

Question 30

How can the PPF be moved up

Answer 30

Increase resources or better the resources they have

Question 31

Why would production be under the PPF

Answer 31

Because some resources are unemployed and the economy is not producing to its full potential

Question 32

What is the opportunity cost of producing more of one item

Answer 32

It is the reduced ability to produce and consume the other item Called a trade-off

Question 33

Why is the PPF not straight

Answer 33

Because of the diminishing returns

Question 34

What causes diminishing returns

Answer 34

Because as resources are shifted from one item to another there is a shift in efficiency because not all resources are as efficient at producing one thing as they are another

Question 35

What is the position of the PPF determined by

Answer 35

The quantity and quality of the resources and the state of technology

Question 36

What are the two types of economic efficiency

Answer 36

Productive efficiency Allocative efficiency

Question 37

What is Productive efficiency

Answer 37

It is when all of a countries resources are fully employed so that it is not possible to make more of any one good/service without having to produce less of another

Question 38

What is Allocative Efficiency

Answer 38

It is when resources are used in a way that maximises consumer satisfaction

Question 39

What is Pareto Efficiency

Answer 39

It is when a country is productive and allocative efficient

Question 40

definition of resources

Answer 40

an asset used to produce goods and services that meet human needs and wants

Question 41

Definition of Specialisation

Answer 41

It is when a factor of production concentrates on a particular activity on a repetitive basis in order to improve productivity and efficiency

Question 42

Definition of Division of Labour

Answer 42

It is when work is split up into specialised tasks preformed by specialist workers

Question 43

Definition on self-sufficiency

Answer 43

When groups of people try to meet all their economic needs through their own efforts rather than specialising in particular areas

Question 44

Who observed the idea of division of labour

Answer 44

Adam Smith

Question 45

What book did he write about division of labour

Answer 45

The Wealth of Nations in 1776

Question 46

How is productivity measured

Answer 46

It is measured by output per worker or per unit of time

Question 47

What are the downsides of division of labour

Answer 47

Specialising narrow areas of activity work may become repetitive and boring for individual workers It also makes workers vulnerable to unemployment if the demand for their skills disappears

Question 48

What will an economic system need if people are specialising

Answer 48

A mechanism for individuals to exchange their specialist output which is conducted in a market A system that allows individuals to place relative values on goods and services that are exchanged. This is best done by introducing a monetary unit or currency

Question 49

What is the market mechanism

Answer 49

It is a mechanism for individuals to exchange their specialist output. This is conducted in a market

Question 50

What are the two main things an economic system will need that is based on division of labour

Answer 50

Markets Money