40 Questions
What is the main topic of Chapter 3?
Production, income and spending
What is the main source of income for the factors of production?
Remuneration
What is the term for the graphical representation of the relationship between production, income, and spending?
Circular flow diagram
What is the term for the amount gained by consumers when they can buy a product for a lower price than they are willing to pay?
Consumer surplus
What is the main topic of Chapter 4?
Demand, supply and prices
What is the term for the highest price that consumers are willing to pay for a product?
Demand curve
What is the term for the graphical representation of the relationship between the quantity of a product demanded and its price?
Demand curve
What is the term for the point at which the supply and demand curves intersect?
Market equilibrium
What does the production possibilities curve illustrate?
The scarcity of resources and the need for choice between different combinations of goods
What does point G on the curve represent?
An unattainable combination of fish and potatoes
What is the significance of the curve forming a frontier or boundary?
It separates what is possible from what is not possible with the available resources
What does the curve show about the available resources?
They are limited and can only produce certain combinations of goods
What is represented on the vertical axis of the graph?
Potatoes (kg per day)
What do the points on the curve represent?
The possible combinations of fish and potatoes that can be produced per day
What is the significance of choice in the context of the production possibilities curve?
It requires selecting one good over another due to limited resources
What is the name of the graph shown in Figure 1-1?
Production possibilities curve
What is the fundamental problem that everyone, regardless of their wealth, faces?
Dealing with scarcity
What is the opportunity cost of a choice?
The value of the best alternative that could have been chosen but was not chosen
Why do economists measure costs in terms of opportunity costs?
Because it captures the essence of the problems of scarcity and choice
What is the limited resource that everyone faces, regardless of their wealth?
Time
What is the opportunity cost of studying for Anne, if she only has to choose between studying and going to the movies?
The visit to the movies that she has to forgo
Why do economic decisions have to be made?
Because of scarcity and limited resources
What is the concept that captures the essence of the problems of scarcity and choice?
Opportunity cost
What is the cost of something, according to the economist?
What you have to give up to get it
What do economists consider in addition to explicit monetary costs?
Implicit costs
What is the main purpose of a production possibilities curve?
To illustrate scarcity, choice, and opportunity cost
What is the maximum amount of potatoes the rural community can produce per working day?
100 kg
Why must the community sacrifice some production of one good to produce another?
Because they have limited resources
What is the opportunity cost of producing 4 baskets of fish per day?
60 kg of potatoes
What is the purpose of the production possibilities curve in the context of the rural community?
To illustrate the different production possibilities available to the community
What is the relationship between the production of fish and potatoes in the rural community?
They are mutually exclusive goods
What is the trade-off faced by the rural community when deciding how to allocate their resources?
Between producing fish and potatoes
Why do many people think economics is a difficult subject?
Because it has a language of its own that many people do not understand
What is economics, according to John Maynard Keynes?
A method and apparatus of the mind, a technique of thinking
What is a common mistake made by non-economists when reasoning about economic issues?
They take a blinkered approach, failing to recognize interrelationships in the economy
What is the result of biased thinking in economics?
Highly simplified and biased diagnoses of economic issues
Why do economists also fall into common mistakes when reasoning about economic issues?
Because they are also prone to biased thinking and simplification
What is the economic way of thinking described as?
A structured common sense approach
Why do people without economic training tend to propose simple solutions to economic problems?
Because they are not trained to recognize interrelationships in the economy
What is an example of biased thinking in economics?
A lecturer in engineering proposing simple solutions to economic problems
Study Notes
Introduction to Economics
- Economics deals with ordinary issues, but it's structured common sense, a way of thinking about everyday issues.
Scarcity, Choice, and Opportunity Cost
- Scarcity: the fundamental economic problem, where unlimited wants exceed limited resources.
- Choice: making decisions about how to allocate limited resources to meet unlimited wants.
- Opportunity cost: the value of the best alternative that is given up when a choice is made.
Production Possibilities Curve
- A curve that shows the maximum amounts of two goods that can be produced with available resources.
- Points on the curve represent possible combinations of two goods that can be produced.
- Points to the right of the curve are unattainable due to scarcity.
Illustrating Scarcity, Choice, and Opportunity Cost
- Consider an isolated rural community that can produce either fish or potatoes.
- The production possibilities curve shows the maximum amounts of fish and potatoes that can be produced.
- The curve illustrates scarcity, as points to the right of the curve are unattainable.
- Choice is illustrated by the need to choose among available combinations along the curve.
The Economic Way of Thinking
- Economics is not just common sense, but structured common sense, a way of thinking about everyday issues.
- The economic way of thinking helps to draw correct conclusions about economic issues.
- Non-economists may make common mistakes when reasoning about economic issues, such as biased thinking.
Common Mistakes in Economic Reasoning
- The blinkered approach: looking at the world from a biased perspective, making simplified diagnoses of economic issues.
- Simple solutions to complex economic problems may not be effective.
This quiz covers the concepts of production, income, and spending in a mixed economy, including sources of production, income, and spending.
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