Microeconomics Chapter 1

Questions and Answers

What is the origin of the word 'economy'?

A Greek word for 'business'

A Greek word for 'one who manages a household' (correct)

A French word for 'finance'

A Latin word for 'money'

What is the main focus of microeconomics?

The study of international trade

The study of individual parts of the economy (correct)

The study of the economic system as a whole

The study of government policies

What is a characteristic of land as a factor of production?

Its value is dependent on the efficiency of labour

Its supply is unlimited

It is mobile

Its supply is fixed in terms of location and geography (correct)

What is the return of land?

Rent Signup and view all the answers

What is a characteristic of labour as a factor of production?

It is mobile Signup and view all the answers

What is the return of labour?

Wage Signup and view all the answers

What is capital in the context of economics?

Assets such as money, equipment, and machinery used in production Signup and view all the answers

What is the main difference between microeconomics and macroeconomics?

Microeconomics studies individual parts of the economy, while macroeconomics studies the economic system as a whole Signup and view all the answers

What is the main problem that leads to choice?

Scarcity of resources Signup and view all the answers

What is the goal of a consumer when making a choice?

To maximize their satisfaction Signup and view all the answers

What is an opportunity cost?

The second best product or service given up Signup and view all the answers

Why do decisions require comparing costs and benefits of alternatives?

Because of scarcity of resources Signup and view all the answers

What is the Production Possibilities Curve (PPC) used to explain?

Scarcity, choices, and opportunity cost Signup and view all the answers

What is the definition of the Production Possibilities Curve (PPC)?

A graph showing the various possible combinations of goods and services produced Signup and view all the answers

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

There are only two goods Signup and view all the answers

What is the question 'For Whom to Produce?' referring to in the basic economic problems?

The distribution of income Signup and view all the answers

Which of the following is a characteristic of a free good?

It is unlimited in supply. Signup and view all the answers

What is the return for an entrepreneur?

Profit Signup and view all the answers

Which type of good is owned by the government and funded by taxes?

Public good Signup and view all the answers

What is the primary reason for scarcity?

Limited resources Signup and view all the answers

Which of the following is NOT a characteristic of economic goods?

They are essential to human life. Signup and view all the answers

What is the concept that describes the value of the best alternative forgone when making a choice?

Opportunity cost Signup and view all the answers

Which of the following is an example of a capital good?

A factory Signup and view all the answers

What is the term for the ability to increase and decrease the quantity of capital used in production?

Mobility Signup and view all the answers

What does a point inside the PPC indicate?

That the production has not reached its maximum capacity and there is wastage of resources Signup and view all the answers

What does a point outside the PPC represent?

That the country is unable to meet production due to limited resources and technology Signup and view all the answers

What happens to the PPC when a country enjoys economic growth?

The PPC shifts outward Signup and view all the answers

What is the effect of natural disasters on the PPC?

The PPC shifts to the left Signup and view all the answers

How does an improvement in technology affect the PPC?

It increases the production of goods Signup and view all the answers

What does the PPC represent?

The maximum combination of goods that can be produced Signup and view all the answers

What happens to the PPC when there are improvements in technology?

The PPC shifts outward Signup and view all the answers

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

Points inside PPC show wastage of resources, while points outside PPC show scarcity Signup and view all the answers

What is meant by full employment in an economy?

All available resources are utilized. Signup and view all the answers

What does the Production Possibility Curve (PPC) illustrate?

The maximum production output of goods. Signup and view all the answers

At Point A of the PPC, what is produced if all resources are allocated to sewing machines?

14 sewing machines. Signup and view all the answers

What is true about the resources available in the context provided?

They are fixed and finite. Signup and view all the answers

What indicates the best possible combinations of resources on the PPC?

Points lying on the curve. Signup and view all the answers

If all resources are allocated to produce butter, which point is achieved?

Point F. Signup and view all the answers

What happens to production if technology changes during the process?

The PPC shifts outward. Signup and view all the answers

What do Points A to F on the PPC represent?

Best combinations of resource use. Signup and view all the answers

Study Notes

Introduction to Microeconomics

This chapter introduces economics, including several key concepts and terms such as scarcity, choice, and opportunity cost.
Economics is the study of how people use their limited resources to try to fulfill unlimited wants and involves alternatives or choices.
The field of economics is divided into microeconomics and macroeconomics.

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, inflation, and general price level.

Economics Resources and Factors

There are four main factors of production: land, labor, capital, and entrepreneur.
Land is a naturally occurring resource with a fixed supply.
Labor is skilled and unskilled and contributes physically and mentally to production.
Capital includes assets such as money, equipment, machinery, and raw materials used in production.
Entrepreneur is the person with the ability and skill to organize production and bear risks.

Types of Goods

Economic goods have limited supply and involve price and opportunity cost.
Free goods are unlimited in supply and can be obtained without cost, such as air and water.
Public goods are owned by the government and paid for by taxpayers' money, such as public roads and powerhouses.
Private goods are owned by individuals or companies and can be used by others if they pay or are allowed by the owner.

Basic Economic Concepts

Scarcity refers to the limited products and services that can be produced to satisfy unlimited human needs and desires.
Choice is the problem of scarcity that leads to decision-making between products and services.
Opportunity cost is the second-best product or service that is given up in order to obtain the best product or service.

Basic Economic Problems

What to produce refers to the type of goods and services to be produced.
How to produce refers to the cheapest method of production.
For whom to produce refers to the distribution of income.

Production Possibilities Curve (PPC)

PPC is a graph that 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 include only two goods, full employment and full production capacity, fixed resources, and no change in technology.
PPC explains basic economic concepts such as scarcity, choice, and opportunity cost.

Shift of PPC

Factors that influence the shift of PPC include economic growth, improvements in technology, and natural disasters.
Economic growth shifts PPC outward, while natural disasters shift PPC inward.
Improvements in technology also shift PPC outward.

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Description

This chapter introduces the basics of economics, covering concepts such as scarcity, choice, and opportunity cost. It also discusses economic problems and issues.