Introduction to Economics

Suppose that the Retail Price Index is equal to 87 for 2015. If the base index (2012) had a value of 100, which of the following is likely to be true? An average, prices fell by 13 per cent since 2012. All prices rose by 87 per cent since 2012. On average, prices rose by 13 per cent since 2012. All prices fell by 13 per cent since 2012.

Opportunity cost Next best alternative foregone • e.g., a business investing into machinery when themoney could be used for

Factors of Production Land, Labour, Capital and Enterprise

Scarcity – Infinite wants– Finite resources

Government provision of goods and services, such as education, would be characterized as planned. Whenever a government allocates resources to the production of goods and services, as in the case of education, then the provision can be categorized as planned. See section 1.1 of Begg and Ward. TRUE

A market economy only exists in rural towns and villages. A market economy is one in which markets allocate scarce resources to the production of different goods and services. The government plays no role in allocating resources. While markets in the open might be common place in rural towns and villages, markets exist wherever a product is traded: in a supermarket, on the internet, or at a market stall. See section 1.1 of Begg and Ward. FALSE

A market economy only exists in rural towns and villages. True, the examination (or study) of individuals or firms is a microeconomic topic. The study of entire economies is a macroeconomic topic. Micro for small, macro for big. See section 1.1 of Begg and Ward. TRUE

The production possibility frontier illustrates the problem of infinite wants The production possibility frontier represents the maximum achievable outputs that can be produced with the economy’s finite resources. So the frontier, amongst other things, illustrates finite resources, not infinite wants. See Figure 1.1 in Begg and Ward. FALSE

The opportunity cost is the benefit forgone from the next best alternative The cost resulting from making a choice between two options is the benefits given up from the next best alternative. See section 1.1 of Begg and Ward. TRUE

When the economy is operating on the production possibility frontier, it is optimal because the economy is producing the optimal number of products. resources are limitless. all resources are employed. all people's needs are satisfied.

Finite resources means that there are limitless resources available for consumption. there are limited resources that are available for consumption. there are limitless resources that firms can use in their production. there are limited resources that firms can use in their production.

Economics, as a social science, is concerned with how to make money False

Finite resources means that there are limitless resources that firms can use in their production. there are limited resources that are available for consumption. there are limited resources that firms can use in their production. there are limitless resources available for consumption.

Infinite wants refer to a limited desire to consume goods and services. limitless desire to produce goods and services. limitless desire to consume goods and services. limited desire to produce goods and services.

Economics, as a social science, is concerned with how to make money. False

The central problem in economics is that of: ensuring that each individual contributes equally to production activities in the economy. guaranteeing an equal standard of living for every citizen in the country. deciding whether a country should adopt a command economy or a market economy. allocating scarce resources such that society's unlimited wants are satisfied in the best possible manner.Correct   Explanation Economics is the study of the allocation of scarce resources such that...

Given an equation Q = 20 – 3P, which of the following statements is likely to be true? A positive relationship exists between P and Q. A plot of the equation will result in a graph with a positive slope. P and Q exhibit a non-linear relationship. Every time P increases by one unit, Q falls by three units.Correct   Explanation The general linear relationship states that Y = a + bX, where a is the intercept and b is the gradient of the line. In the above equation, the value of Q is 20 when...

Knowledge-based economies are likely to spend more on _____. research and developmentCorrect unemployment benefits agricultural loans social security payments   Explanation The move towards more knowledge based economies can be seen with an increase in research and development (R&D) expenditure, highlighting the importance of scientific knowledge as an economic resource.

Given the equation B = 12 – 2A + X2, which of the following is likely to be true? A plot of the equation on a graph will show a U-shape.Correct The given equation represents a hyperbola. The variables B and X exhibit a linear relationship. The intercept for the curve shown in the equation is 10.   Explanation A quadratic is generally specified as Y = a + bX + cX2; in the above equation,  the negative sign comes first, which causes the U-shaped relationship.

Models are useful to economists in their analysis because models _____. help organize and clarify the thought process behind a problemCorrect are normative in nature incorporate all the complexities of a real-world economy use terms and phrases that are particular to economics   Explanation Models or theories are frameworks for organizing how we think about an economic problem.

In a planned economy, _____. the government determines the allocation of resourcesCorrect the private sector and government jointly decide the allocation of resources firms and producers determine how resources are allocated the market allocates resources to the production of various goods and services   Explanation A planned economy is one where the government owns the majority of resources and determines the allocation of resources.

Which of the following topics would be studied under microeconomics? The profit-maximizing behaviour of a firm.Correct The effects of aggregate inflation. The level of national unemployment. The growth rate of GNP.   Explanation Microeconomics is the study of the behaviour of individual economic agents such as firms and consumers.

Labour is the factor of production that organizes other factors into productive business units. FALSE   Explanation Enterprise is the factor of production that brings land, labour and capital together and organizes them into business units that produce goods and services with the objective of making a profit.

The production possibility frontier has a negative slope because _____. operating at a point on the frontier is not optimal the costs of production are very high resources are infinite while human wants are limited it exhibits increasing opportunity costsCorrect   Explanation The production possibility frontier's negative slope exhibits increasing opportunity costs because more and more goods on the X axis have to be given up to increase the production of goods on the Y axis by equal...

The production possibility frontier shows _____. the total quantity of land available in an economy the different combinations of inputs that can be used to produce a given good the maximum number of products that can be produced by an economy with the given resourcesCorrect the various combinations of labor and capital that can be used to produce a good at a given wage and rent   Explanation The production possibility frontier shows the maximum number of products that can be produced by...

For a student, the opportunity cost of attending college is the income that she gives up by going to class rather than working. TRUE   Explanation Opportunity costs are the benefits forgone from the next best alternative. If a student attends college, she is forgoing the income that she could have earned, which becomes the opportunity cost of attending college.

If a society is moving along its production possibility frontier, then _____. the production process is becoming increasingly inefficient some of its resources are unemployed more of all goods are being produced it is giving up more of some goods to produce other goodsCorrect   Explanation If a society moves along its production possibility frontier, then it must be giving up more and more of some goods to produce other goods. This is because the production possibility frontier shows the...

Which of the following pertains to microeconomics? The level of inflation and employment in an economy. The shifts in the aggregate supply and aggregate demand curves in the economy. The change in the supply of a good based on a change in costs.Correct The human development index and quality of life in a country.   Explanation Microeconomics places the focus of analysis on the behaviour of firms and consumers. A change in the supply of a good based on a change in costs pertains to the...

To deal with the problem of scarcity, every society must: place a limit on human needs and wants. reduce the quantity of resources that are allocated to production. distribute income equally among all its citizens. make choices about what is to be produced, how and for whom.Correct   Explanation The problem of scarcity makes it necessary for every society to decide about what is to be produced, how and for whom.

Economists make abstract assumptions about reality in theories and models in order to _____. assert and represent particular beliefs simplify the real world and predict behaviorCorrect incorporate all the details of real-world economic problems provide a precise and accurate explanation of behavior   Explanation Economists try to keep things simple and extract only the important points for analysis. The predictive approach is a theoretical short cut that enables economists to simplify the...

Which of the following is likely to happen as economies grow faster? A fall in expenditure on research and development. A decline in the levels of power consumption. A movement away from an agrarian economy.Correct A fall in the provision of financial credit.   Explanation Since agriculture is a low-adding activity that does not generate lots of economic wealth, economies move away from agriculture as they become industrialized.

For a non-linear curve, the gradient is equal to zero _____ of the curve. at the negatively sloped portion at the turning pointCorrect at the intercept at the positively sloped portion   Explanation At the turning point of a curve the gradient is flat and therefore equal to zero.

Opportunity cost can be defined as _____. the cost of production that remains fixed even as more output is produced the profits earned from selling a particular good the variable costs of producing a good the benefits forgone from the next best alternative

Gross domestic product (GDP) is a measure of overall economic activity within an economy TRUE