Unit 1-Basic economic ideas and resource allocation

Question 1

What is economics?

Answer 1

A social science subject that studies how human beings manage the basic economic problem and resource allocation in the most efficient way

Question 2

Why is economics a social science?

Answer 2

social - focuses on human behaviour
science - theories are put forward and invesitigated

Question 3

What are theories/models?

Answer 3

A simplified representation of what has taken place and usually explained mathematically.
They can be used over and over in different contexts, to test theories.

Question 4

Define

Positive statements

+words used

Answer 4

statements that can be settled with facts
they key words are true/false, yes/no
true is taken as to be consistent with facts

Question 5

Define

Normative students

+key words

Answer 5

• statements based on opinion, moral beliefs
• can not be proved by facts, settled by voting
• ought would should

Question 6

What is the fundamental economic problem?

Answer 6

unlimited needs and wants and limitied resources
to satisy the needs and wants

Question 7

What are the factors of production?

Answer 7

Land
Captial
Labour
Enterprise

Question 8

Define

Oppurtunity Cost

Answer 8

The cost of the forgone alternative

Question 9

What are the economic problem questions?

Answer 9

What to produce
How to produce
For whom to produce

Question 10

Define

Scale of the preference

Answer 10

How human beings arrange their wants to minimise oppurtunity cost

Question 11

Define

Ceteris Paribus

Answer 11

used by economists to refer to a situation where other things are held constant or other things remain equal

Question 12

The margin

Question 13

Time periods

Short Run

Answer 13

some factors of production are changed, not all of them
At least one factor of production is fixed

Question 14

Time periods

Long run

Answer 14

all factors of production can change

Question 15

Time periods

very long run

Answer 15

all factors of production can change as well as other external variables

eg. technology\

Question 16

Factors of production

Land

Answer 16

natural resource
valued on both quality and quantity and can be improved

Question 17

Factors of production

What is the factor reward for land?

Answer 17

Rent

Question 18

Factors of production

Labour

Answer 18

human resource
Quality - skilled or unskilled depending on levels of eductation
Quantity - affected by working population, cultural practices, immigration

Question 19

Factors of production

What is the factor reward for labour?

Answer 19

salaries/wages

Question 20

Factors of production

Capital

Answer 20

Physical resource that is human made and that aids production
Combines land and labour to produce goods and services

eg offices machines and infrastructure

Question 21

Factors of production

What is the factor reward for capital?

Answer 21

Interest

Question 22

Factors of production

Enterprise

Answer 22

Form of human capital involves organising production and taking risks to be able to produce the goods and services themselves

Question 23

Factors of production

Factor reward for enterprise

Answer 23

Profit

Question 24

First mover advantage

Answer 24

an advantage gained by a company/enterprise that first intoduces a good or service to the market

Question 25

Benefit of economies of scale?

Answer 25

the more goods produced, the cheaper it is to produce and the lower the cost per unit for consumers

Question 26

# Define Non-excludable

Answer 26

Once provided you can not stop another from using it

Question 27

# Define Non-rival

Answer 27

one's consumption does not diminish anothers

Question 28

# Define Non-rejectable

Answer 28

Once provided you can not refuse

Question 29

Forms of labour?

Answer 29

Capital saving and Labour saving

Question 30

Advantages of division of labour

Answer 30

* Efficiency at specific operations * Saving equipment * Saving time * Saving skills(new jobs) * Allows for greater degrees of mechanisation

Question 31

Disadvantages of division of labour

Answer 31

* Loss of flexibility * Loss of other skills * Monotony * Interdependence * Increased risk of unemployment

Question 32

What is required for specialisation to work properly

Answer 32

Large markets for standardised products, large output and large labour force and good transport systems

Question 33

What is direct production?

Answer 33

one person makes a product beginning to end

Question 34

What is Indirect production?

Answer 34

multiple people perform specific tasks to produce one good

Question 35

Market systems

Answer 35

allocative mechanism in charge of resource managemnet to resove the fundamental economic problem

Question 36

# Describe Planned system

Answer 36

* Government is in charge of resource allocation * This is done by the central planning committee * Long bureaucratic chain of command

Question 37

# Market systems Role of the central planning committee in the planned market system?

Answer 37

* Allocation of resources * Setting targets for the economy * Planning for long term growth

Question 38

# Market systems Advantages of a Planned economy

Answer 38

* Public goods are produced * No wasteful duplication and competition * economies of scale * Decisions not influenced by the price mechanisms

Question 39

# Market Systems Disadvantages of a Planned economy

Answer 39

* Bureaucracy * Limited choices for consumers * No customer sovereinity * Low motivation of workers- low quality output * Shortages and rationing due to mistakes of the cpc

Question 40

# Describe Market economy

Answer 40

Controlled by private capitalists and the price mechanism

Question 41

# Market systems Advantages of Market economies

Answer 41

* Customer sovereinity * More options for the consumers * better quality of goods due to competition * High motivation of workers

Question 42

# Market systems Disadvantages of Market systems

Answer 42

* Wasteful duplication * Demerit goods * Unstable economy * Public goods are not produced

Question 43

# Define Free Goods

Answer 43

abundant in supply with no opputunity cost non-excludable and non-rival | can be turned into economic goods

Question 44

# Define Private/economic goods

Answer 44

scarce and have an oppurtunity cost Excludable and Rivalrous

Question 45

# Define Zero-marginal cost

Answer 45

No direct cost to you, but bought by the government with your taxes

Question 46

# Define Public goods

Answer 46

Produced by the government because market would underproduce them non-excludable non-rival non-rejectable zero-marginal cost

Question 47

# Define Merit goods

Answer 47

Produced and subsidised by the government to encourage consumption because they have positive externalities, and would be underproduced by the market

Question 48

# Define Demerit goods

Answer 48

Goods with negative externalities that are often over consumed dues to lack of education on their effects. Heavily taxed by the government to discourage use and consumption

Question 49

Production Possibility Curve

Answer 49

A representation showing the maximum quantity of two goods that can be produced given the current resources and state of technology, assuming all resources are fully and efficiently utilized

Question 50

What does point B represent on the PPC

Answer 50

Full utilization of resources for good A