Unit 1 - Basic economic concepts

Question 1

What does thinking like an economist mean?

Answer 1

Scarcity and choice
Purposeful behaviour
Marginal analysis

Question 2

What are individuals economic problem?

Answer 2

• Limited income
• Unlimited wants
• A budget line: Attainable and unattainable options, tradeoffs and opportunity costs.
• Change in income

Question 3

What is the production possibilities model?

Answer 3

Shows the maximum combinations of two goods that can be produced with the resources available today. If you produce more of one, you produce less of the other.

Question 4

What is optimal allocation?

Answer 4

MR = MC
The optimal amount of cars is where the marginal benefit is equal to the marginal cost of producing another car unit.

Question 5

What is economics?

Answer 5

Economics
Scarcity
Opportunity costs
Factors of production

Question 6

Circular flow model

Answer 6

Question 7

Economic systems

Answer 7

Command system: an economic system in which most property resources are owned by the government and economic decisions are made by a central government body.
- Known as Socialism or Communism
- North Korea and Cuba last remaining examples.

Capitalism: The Market System.
- Private ownership of resources
- Decisions based on markets
Characteristics:
o Private property: Private property rights encourage investment, innovation, exchange of assets, maintenance of property, and economic growth. Property rights extend to intellectual property through patents, copyrights, and trademarks.
o Freedom of enterprise and choice exist: entrepreneurs and businesses have the freedom to obtain and use resources, to produce products of their choice, and to sell these products in the markets of their choice.
o Self-interest: is one of the driving forces in a market system. Entrepreneurs try to maximize profits or minimize losses; resource suppliers try to maximize income; consumers maximize satisfaction.
o Competition
o Markets and prices.