Week 1

Question 1

What is economics?

Answer 1

the study of choices people make in order to achieve goals given scarce resources

Question 2

What are the 3 key economic ideas?

Answer 2

1: people are rational
2: people respond to economic incentives
3: optimal decisions are made at the margin

Question 3

what does people are rational mean?

Answer 3

weigh benefits and costs and only do action if benefit outweighs cost

Question 4

what is the optimal decision at the margin

Answer 4

when MB = MC

Question 5

what are the 3 key economic questions

Answer 5

1: what to produce
2 how to produce
3: who to produce for

Question 6

who determines what to be produced

Answer 6

consumers

Question 7

how many different ways do societies organise economies to answer questions

Answer 7

3 ways

1: centrally planned
2: market economy
3: mixed economy

Question 8

what is a centrally planned economy

Answer 8

where the government makes the decisions on what is to be produced

Question 9

what is a market economy

Answer 9

where private firms produce responding to the wants of consumers

Question 10

what is a mixed economy

Answer 10

a combination of centrally planned and market economies the most common in the world

Question 11

what is efficiency

Answer 11

using resources to maximise production

Question 12

how many types of efficiency are there?

Answer 12

3 types

1: productive
2: allocative
3: dynamic

Question 13

what is productive efficiency

Answer 13

making goods and services using the least amount of resources

Question 14

what is allocative efficiency

Answer 14

when production reflects consumer preferences and the MB to consumers is equal to the MC of production

Question 15

what is dynamic efficiency

Answer 15

when technology and innovation is adopted over time

Question 16

what is equity

Answer 16

the fair distribution of economic benefits between individuals and societies

Question 17

is there a trade off between efficiency and equity

Answer 17

yes

Question 18

what is positive analysis

Answer 18

concerned with what is and can be checked with facts

Question 19

what is normative analysis

Answer 19

concerned with what ought to be and is a value judgement

Question 20

do economists focus on positive or normative analysis

Answer 20

positive

Question 21

what does a PPF do?

Answer 21

analyse trade offs and opportunity costs and shows maximum attainable combination of 2 products

Question 22

a point along the PPF curve is?

Answer 22

efficient

Question 23

a point inside the PPF curve is?

Answer 23

inefficient

Question 24

a point outside the PPF curve is?

Answer 24

unattainable

Question 25

how is opportunity cost shown on the PPF?

Answer 25

by moving from one point to another

Question 26

what is a marginal opportunity cost

Answer 26

producing more forces you to give up more of producing something else

Question 27

marginal opportunity costs highlight?

Answer 27

the more resources you devote to something the less benefits over time you receive

Question 28

how is economic growth shown on the PPF

Answer 28

by the curve shifting outwards

Question 29

can growth have effect on one good but not another resulting in a modified shift

Answer 29

yes

Question 30

what does autarky mean

Answer 30

being self sufficient/not trading

Question 31

absolute advantage?

Answer 31

being able to produce more with given resources

Question 32

comparative advantage?

Answer 32

being able to produce at a lower opportunity cost

Question 33

what is the basis for trade comparative or absolute advantage?

Answer 33

comparative

Question 34

what does the market system do

Answer 34

coordinates the decisions of buyers and sellers

Question 35

what is the product market

Answer 35

the market for finished goods and services

Question 36

what is the factor market

Answer 36

the market for factors of production

Question 37

what are the factors of production

Answer 37

1: labour 2: capital 3: natural resources 4: entrepreneurial ability

Question 38

what is the market mechanism

Answer 38

firms will respond to changes in demand for a good or service by changing the price

Question 39

what is the price mechanism

Answer 39

price changes lead producers to change production in accordance with the level of consumer demand

Question 40

what is in the legal basis of a successful market system

Answer 40

1: property rights 2: enforcement of contracts