Economics Basics: Definition, Micro, and Macro

Questions and Answers

What does point D on the production possibilities curve represent?

Production of 9,000 units of sewing machine and 3,000 kg butter

Production of 3,000 units of sewing machine and 9,000 kg butter

Production of 3,000 kg butter and 9,000 units of sewing machine (correct)

Production of 9,000 kg butter and 3,000 units of sewing machine

What is the name of the curve shown in the diagram?

Production Possibilities Frontier

Economic Growth Curve

Scarcity Curve

Production Possibilities Curve (correct)

What does point Z on the diagram represent?

A point of scarcity

A point of choice

A point outside the PPC (correct)

A point of inefficiency

What does point Y on the diagram represent?

A point inside the PPC Signup and view all the answers

What is the main concept illustrated by the PPC?

Choice Signup and view all the answers

What is the difference between points inside and outside the PPC?

Points inside are attainable, while points outside are unattainable Signup and view all the answers

What is the main focus of microeconomics?

The study of individual parts of the economy Signup and view all the answers

What is the definition of economics that involves alternatives or choices?

Economics is a study of how people use their limited resources to try to fulfill unlimited wants Signup and view all the answers

What does the PPC curve show?

The different combinations of butter and sewing machines that can be produced Signup and view all the answers

What is the name of the concept represented by point Y on the diagram?

Inefficiency Signup and view all the answers

What type of analysis deals with the question of 'what ought to be'?

Normative analysis Signup and view all the answers

What is the main difference between microeconomics and macroeconomics?

Microeconomics focuses on individual parts of the economy, while macroeconomics focuses on the economy as a whole Signup and view all the answers

What is the focus of a positive analysis?

Facts and cause-and-effect relationships Signup and view all the answers

What is not a part of microeconomics?

National income Signup and view all the answers

What is the main goal of economics?

To study how people use their limited resources to try to fulfill unlimited wants Signup and view all the answers

What is not a definition of economics?

Economics is a study of how people use their unlimited resources to try to fulfill limited wants Signup and view all the answers

What does the Production Possibilities Curve (PPC) show?

The various possible combinations of goods and services produced within a specified time period Signup and view all the answers

What is one of the assumptions of the Production Possibilities Curve (PPC)?

The amount of resources available is fixed Signup and view all the answers

What would happen if a country allocates all its resources to producing one product?

It would produce at a point on the PPC Signup and view all the answers

What is the combination of goods and services that Country Jaya can produce at Point C on the PPC?

2,000 kg butter and 12,000 units of sewing machine Signup and view all the answers

What happens to the production of butter if Country Jaya allocates all its resources to producing sewing machines?

The production of butter stops Signup and view all the answers

What is implied by the assumption of full employment in the PPC?

That all resources are being used efficiently Signup and view all the answers

What is the implication of the assumption that the state of technology does not change throughout the production?

That the PPC will remain the same Signup and view all the answers

What is the point on the PPC where Country Jaya produces only sewing machines?

Point A Signup and view all the answers

What is the effect of an increase in population on the PPC curve?

It shifts to the right Signup and view all the answers

What type of economic system does an Islamic economy represent?

Islamic economy is a unique category Signup and view all the answers

What is a key characteristic of a capitalist economic system?

Individuals make economic decisions using a price system Signup and view all the answers

What would be the effect of a decrease in population on the PPC curve?

It shifts to the left Signup and view all the answers

What is NOT a type of economic system mentioned in the content?

Communist economy Signup and view all the answers

What is true about the PPC curve?

It shows the various combinations of two goods that can be produced Signup and view all the answers

What is a characteristic of an Islamic economy?

Government plays a limited role Signup and view all the answers

What is NOT a characteristic of a capitalist economy?

Resources are allocated based on social welfare Signup and view all the answers

Which of the following is a characteristic of a private enterprise economy?

Freedom of enterprise and choice Signup and view all the answers

What is the outcome of consumers' sovereignty in an economy?

Production according to consumers' needs Signup and view all the answers

Which economic system has the government or central authority making all economic decisions?

Socialism Signup and view all the answers

What is a demerit of a private enterprise economy?

Inequality of distribution of wealth and income Signup and view all the answers

Which of the following is a merit of a private enterprise economy?

Variety of consumer goods Signup and view all the answers

What is a characteristic of a private enterprise economy?

Private ownership of resources Signup and view all the answers

What is the outcome of economic freedom in an economy?

Efficient utilization of resources Signup and view all the answers

Which of the following is a demerit of socialism?

Lack of social welfare Signup and view all the answers

Study Notes

Definition of Economics

Economics is the science that studies human behavior as a relationship between ends and scarce means which have alternative uses.
Economics is the study of how people use their limited resources to try to fulfill unlimited wants and involves alternatives or choices.

Microeconomics vs. Macroeconomics

Microeconomics is the study of individual parts of the economy, such as public choices, business choices, and personal choices.
Macroeconomics is the study of the economic system as a whole, including national income, trade cycle, unemployment rate, and general price level.

Positive vs. Normative Analysis

A positive analysis deals with the question of "what is" and focuses on facts and cause-and-effect relationships.
A normative analysis deals with the question of "what ought to be".

Production Possibilities Curve (PPC)

The PPC shows the various possible combinations of goods and services produced within a specified time period with all resources fully and efficiently employed.
Assumptions of PPC:
- The economy is operating in full employment and full production capacity.
- The amount of resources available is fixed.
- The state of technology does not change throughout the production.

Shift of PPC

Factors that influence the shift of PPC:
- Increase in population
- Decrease in population
- Improvement in technology
- Change in the quantity of resources

Economic Systems

Types of economic systems:
- Mixed economy
- Socialism
- Capitalism
- Islamic economy

Capitalism

Characteristics of capitalism:
- Private ownership of resources
- Freedom of enterprise and choice
- Consumers' sovereignty
- Competition
- Government intervention
- Price system
Merits of capitalism:
- Production according to consumers' needs
- Economic freedom
- Efficient utilization of resources
- Variety of consumer goods
- Enhanced trade, business, and R&D
- Automatic incentives
- Flexibility
Demerits of capitalism:
- Inequality of distribution of wealth and income
- Inflation and high unemployment rate
- Lack of social welfare
- Wasteful competition
- Misallocation of resources
- Social cost

Socialism

Characteristics of socialism:
- All economic decisions are made by the government or a central authority
Merits of socialism:
- Equality of distribution of wealth and income
- Social welfare
- Government intervention to correct market failures
Demerits of socialism:
- Lack of economic freedom
- Inefficient utilization of resources
- Limited consumer goods
- Lack of incentives
- Bureaucratic inefficiency
- Corruption

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Description

Understand the fundamental principles of economics, including the definition, and the differences between microeconomics and macroeconomics.