UNIT 1: INTRO TO ECON

Question 1

What is a economy?

Answer 1

System for coordinating society’s production activities

Question 2

Difference between MICROeconomics and MACROeconomics?

Answer 2

Micro: how individuals,household and firms make decisions

Macro: how the economy behaves as a whole

Question 3

What are the principles of individual choice? C.H.T.P

Answer 3

1. Choices are necessary, because resources are scarce
2. True cost of something is in its opportunity cost
3. “How much” is the decision at the margin
4. People usually respond to incentives

Question 4

What are the principles that govern interaction? G.E.M.M.O.O

Answer 4

1. Gains from trade
2. Markets move towards equilibrium
3. Effective use of resources to achieve societal goals
4. Markets usually lead to efficiency
5. One person spending is another person’s income.
6. Overall spending sometimes gets with the economy’s production capacity

Question 5

What is PPF?

Answer 5

The production possibilities frontier shows the combination of two goods that are possible at full employment