Theme 1

Question 1

What is the definition of scarcity?

Answer 1

Scarcity refers to the limited availability of resources relative to the unlimited wants and needs of society.

Question 2

True or False: Scarcity only applies to developing countries.

Answer 2

False

Question 3

What is the economic problem?

Answer 3

The economic problem is how to allocate scarce resources among competing uses.

Question 4

What are the three basic economic questions?

Answer 4

What to produce, how to produce, for whom to produce.

Question 5

Define opportunity cost.

Answer 5

Opportunity cost is the next best alternative foregone when a choice is made.

Question 6

What is the production possibility frontier (PPF)?

Answer 6

The PPF is a curve showing the maximum combinations of goods and services that can be produced with available resources and technology.

Question 7

What does a point inside the PPF indicate?

Answer 7

A point inside the PPF indicates that resources are not being fully utilized.

Question 8

What does a point outside the PPF indicate?

Answer 8

A point outside the PPF is unattainable given current resources and technology.

Question 9

What is economic growth?

Answer 9

Economic growth is an increase in the quantity and quality of resources leading to an increase in the production of goods and services.

Question 10

Define productive efficiency.

Answer 10

Productive efficiency occurs when goods and services are produced at the lowest possible cost.

Question 11

What is allocative efficiency?

Answer 11

Allocative efficiency occurs when resources are allocated to the production of goods and services that society values most.

Question 12

What is the difference between microeconomics and macroeconomics?

Answer 12

Microeconomics focuses on individual economic agents like households and firms, while macroeconomics looks at the economy as a whole.

Question 13

What are the four factors of production?

Answer 13

Land, labor, capital, entrepreneurship.

Question 14

What is the law of demand?

Answer 14

The law of demand states that as the price of a good or service decreases, the quantity demanded increases, and vice versa.

Question 15

What is the law of supply?

Answer 15

The law of supply states that as the price of a good or service increases, the quantity supplied increases, and vice versa.

Question 16

What is market equilibrium?

Answer 16

Market equilibrium occurs when the quantity demanded equals the quantity supplied at a specific price.

Question 17

What is a price mechanism?

Answer 17

The price mechanism is the system by which prices help allocate resources.

Question 18

Define elasticity of demand.

Answer 18

Elasticity of demand measures the responsiveness of the quantity demanded of a good or service to a change in its price.

Question 19

What is the formula for calculating price elasticity of demand?

Answer 19

Percentage change in quantity demanded divided by percentage change in price.

Question 20

What is income elasticity of demand?

Answer 20

Income elasticity of demand measures the responsiveness of quantity demanded to a change in income.

Question 21

Define cross elasticity of demand.

Answer 21

Cross elasticity of demand measures the responsiveness of quantity demanded of one good to a change in the price of another good.

Question 22

What is the difference between a normal good and an inferior good?

Answer 22

A normal good is one for which demand increases as income increases, while an inferior good is one for which demand decreases as income increases.

Question 23

What is a market failure?

Answer 23

Market failure occurs when the allocation of goods and services by a free market is not efficient.

Question 24

What are some causes of market failure?

Answer 24

Externalities, public goods, information asymmetry, and market power.

Question 25

What is a public good?

Answer 25

A public good is non-excludable and non-rivalrous in consumption.

Question 26

What is the tragedy of the commons?

Answer 26

The tragedy of the commons is the depletion of a shared resource due to individuals acting in their self-interest.

Question 27

Define asymmetric information.

Answer 27

Asymmetric information occurs when one party in a transaction has more information than the other.

Question 28

What is a merit good?

Answer 28

A merit good is a good that is underprovided by the market and has positive externalities.

Question 29

What is a demerit good?

Answer 29

A demerit good is a good that is overprovided by the market and has negative externalities.

Question 30

What is the role of the government in correcting market failures?

Answer 30

The government can intervene through regulation, taxation, subsidies, and provision of public goods.

Question 31

What is the circular flow of income?

Answer 31

The circular flow of income is a model that shows the flow of goods, services, and money between households and firms in an economy.

Question 32

What is the difference between injections and leakages in the circular flow of income?

Answer 32

Injections are additions to the circular flow (investment, government spending, exports), while leakages are withdrawals from the circular flow (saving, taxes, imports).

Question 33

What is the multiplier effect?

Answer 33

The multiplier effect is the process by which an initial injection into the economy leads to a larger final increase in national income.

Question 34

What is the marginal propensity to consume (MPC)?

Answer 34

The MPC is the proportion of additional income that households spend on consumption.

Question 35

What is the marginal propensity to save (MPS)?

Answer 35

The MPS is the proportion of additional income that households save rather than spend on consumption.

Question 36

What are the limitations of the multiplier effect?

Answer 36

Leakages from the economy, such as imports and taxes, can reduce the overall impact of the multiplier effect.

Question 37

What is the difference between economic growth and economic development?

Answer 37

Economic growth refers to an increase in the quantity and quality of goods and services produced, while economic development includes improvements in living standards, health, education, and social welfare.

Question 38

Define sustainable development.

Answer 38

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Question 39

What are the three dimensions of sustainable development?

Answer 39

Economic, social, and environmental.