MODULE 1

Question 1

How do economists think?

Answer 1

economists assume people behave rationally, each of us make choices by logically weighing the personal benefits and costs of of available actions, we then select the most attractive option

Question 2

What is the economic problem?

Answer 2

The problem of having unlimited wants, but limited resources

Question 3

What are the three economic resources?

Answer 3

1. Natural resources (example: land used for farms, raw materials such as minerals) 2. Capital resources (example: a newspaper printing plant and its printing presses, as well as the processed inputs- paper and ink) 3. Human Resources (example: labour - the work of a brain surgeon. Entrepreneurship - the efforts of a founder of a start up company)

Question 4

What is microeconomics?

Answer 4

Focuses on the behaviour of individual participants in various markets

Question 5

What is macroeconomics?

Answer 5

Takes a more wide-ranging view of the economy

Question 6

What are the four important sectors in the economy?

Answer 6

Households, businesses, government, and foreign markets

Question 7

What are economic models?

Answer 7

Simplified generalization of economic reality (example: the Canadian economy, in which literally millions of separate transactions - sales and purchases - are made each day)

Question 8

What is ceteris paribus?

Answer 8

Assuming that all other things remain the same

Question 9

What is an independent variable?

Answer 9

The variable in a casual relationship that causes change in another variable

Question 10

What is a dependent variable?

Answer 10

The variable in a casual relationship that is affected by another variable

Question 11

What is an inverse relationship?

Answer 11

A change in the independent variable causes a change in the opposite direction of the dependent variable

Question 12

What is a direct relationship?

Answer 12

A change in the independent variable causes a change in the same direction of the dependent variable

Question 13

What is a positive statement?

Answer 13

Is one that can be proved or disproved

Question 14

What is a normative statement?

Answer 14

Is opinion based (“we should reduce taxes”)

Question 15

What is utility maximization?

Answer 15

Economists assume that whenever you make an economic choice, you are trying to maximize your own utility

Question 16

What is utility?

Answer 16

The satisfaction or pleasure you derive from any action

Question 17

What is opportunity cost?

Answer 17

The utility that could have been gained by choosing the actions best alternative

Question 18

What does the production possibilities model assume?

Answer 18

That an economy makes two products, resources and technology are fixed, and resources are fully employed

Question 19

The production possibilities model:

Answer 19

Illustrates the trade odds that society faces in using its scarce resources

Question 20

The production possibilities curve:

Answer 20

A graph that illustrates the possible output combinations for an economy. It has a CONCAVE shape, which reflects the law of increasing opportunity costs

Question 21

When would the production possibilities curve have a negative slope, from the left to the right?

Answer 21

When making more of one product results in making less of another. There is an inverse relationship between the quantities produced

Question 22

What do points within the production possibilities curve represent?

Answer 22

They are possible

Question 23

What do points outside the production possibilities curve represent?

Answer 23

They are not possible

Question 24

What is the role of scarcity in the production possibilities curve?

Answer 24

As well as showing the economic choices a society faces, the production possibilities curve highlights the scarcity of economic resources. The curve is the boundary between all those output combinations that are within the reach of an economy and all those combinations that are impossible

Question 25

What is the law of increasing opportunity costs?

Answer 25

States that as more of one product is produced, its opportunity cost in terms of other product increases. This law arises from the fact that economic resources do not transfer perfectly from one use to another

Question 26

What is economic growth?

Answer 26

An increase in an economy’s total output of goods and services, either due to a rise in the amount of available resources or an improvement in technology

Question 27

What happens to the production possibilities curve when there is economic growth?

Answer 27

Both trends cause an outward shift in the production possibilities curve, which means that the area of possible output combinations expands

Question 28

What is economic contraction?

Answer 28

A society’s total output of goods and services falls, either because of a drop in the amount of available resources, or because of the assumption of full product is broken

Question 29

What happens to the production possibilities curve when there is economic contraction?

Answer 29

A drop in available resources leads to an inward shift, assumption of full product is broken causes the economy to move to a point within the area bounded by the curve

Question 30

What are the three basic economic questions?

Answer 30

1. What to produce. 2. How to produce. 3. For whom to produce.

Question 31

What is a traditional economy?

Answer 31

An economic system in which economic decisions are made based on custom

Question 32

What is a market economy?

Answer 32

An economic system based on private ownership and the use of markets in the economic decision making

Question 33

What is a command economy?

Answer 33

Opposite to a market economy, an economic system based on a public ownership and central planning

Question 34

What is a mixed economy?

Answer 34

An economic system that combines aspects of a market economy and a command economy; production decisions are made both in private markets and by government

Question 35

What are traditional mixed economies?

Answer 35

Economic systems in which traditional sector co-exists with modern sectors (private/public sectors)

Question 36

What are some economic goals?

Answer 36

Income equity, full employment, viable balance of payments, economic growth, economic sustainability

Question 37

What are complementary goals?

Answer 37

An example is the relationship between full employment and economic growth

Question 38

What are conflicting goals?

Answer 38

An example is the relationship between price stability and full employment

Question 39

Who is Adam smith?

Answer 39

The founder of modern economics. Explained how the division of labour increases production. Argued that self interest is transformed by the invisible hand of competition

Question 40

What is the principle of laissez faire?

Answer 40

Individual self-interest ceases to benefit society when competition is lacking