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Basic Economics Concepts
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Basic Economics Concepts
Economics theme one
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1
Question
Economic agent
Answer
A participant in an economic system be it a consumer, business or the government.
2
Question
Entrepreneur
Answer
An individual who seeks to supply products to a market for a rate of return i.e. a profit. Entrepreneurs will often invest their own financial capital in a business and take on the risks associated with a business investment.
3
Question
Factors of production
Answer
The inputs available to supply goods and services Land - Natural resources available for production Labour - The human input into the production process Capital - goods used in the supply of other products e.g. technology, factories and specialized machinery Enterprise - Entrepreneurs organise factors of production and take risks Know-how - Information required to develop, produce and bring products to the market.
4
Question
Finite resources
Answer
There are only a finite number of workers, machines, acres of land and reserves of oil and other natural resources on the earth. By producing more for an ever-increasing population, we may destroy the natural resources of the planet.
5
Question
Free goods
Answer
Free goods do not use up any factor inputs when supplied. Free goods have a zero-opportunity cost i.e. the marginal cost of supplying an extra unit of a free good is zero.
6
Question
Inputs
Answer
Labour, capital and other resources used in the production of goods and services.
7
Question
Land
Answer
Natural resources available for production.
8
Question
Labour
Answer
Physical and mental effort by humans.
9
Question
Non-renewable
Answer
Non-renewable resources are resources which are finite and cannot be replaced. Minerals, fossil resources fuels and so on are all non-renewable resources.
10
Question
Opportunity cost
Answer
The cost of any choice in terms of the next best alternative foregone.
11
Question
Rationing
Answer
Rationing is a way of allocating scarce goods and services when market demand exceeds available supply. There are many ways of rationing including by price, by consumer income, by assessment of need, by education level and by age, gender, nationality.
12
Question
Renewable resources
Answer
Renewable resources in theory are replaceable if the rate of extraction of the resource is less than the natural rate at which the resource renews. Examples of renewable resources are solar energy, oxygen, biomass, fish stocks and forestry.
13
Question
What does 'scarce' mean in economics?
Answer
Limited availability of resources to meet unlimited desires for goods and services.
14
Question
What is Allocative efficiency?
Answer
When the value consumers place on a good/service (price they're willing to pay) equals the cost of resources used in production.
15
Question
What are Capital goods?
Answer
Goods used to produce other goods and services in the future, such as factories and machinery.
16
Question
What is a Concave production possibility frontier?
Answer
A PPF bowed outwards, indicating a rising marginal opportunity cost due to imperfect factor mobility.
17
Question
What are Consumer goods?
Answer
Goods bought and used by consumers and households.
18
Question
What is Economic efficiency?
Answer
Making the best use of scarce resources to maximize economic and social welfare.
19
Question
What is Economic growth?
Answer
An increase in a country's productive potential, shown by an outward shift of the PPF.
20
Question
What is Pareto efficiency?
Answer
An action that harms no one and benefits at least one person; a situation where you can't improve one person's situation without worsening another's.
21
Question
What is a Production possibility frontier?
Answer
A boundary showing the maximum combinations of goods and services that can be produced with available resources.
22
Question
What is Productive potential?
Answer
The amount of output an economy could produce if all resources are fully and efficiently employed.
23
Question
What is a Trade-off?
Answer
A choice between different policy objectives, e.g., economic growth vs. inflation.
24
Question
Who is Adam Smith?
Answer
One of the founding fathers of modern economics, known for 'The Wealth of Nations' and his ideas on the division of labor.
25
Question
What is Alienation?
Answer
The feeling of estrangement workers feel from their work due to the repetitive nature of the division of labor.
26
Question
Division of labour
Answer
The specialization of labour in specific tasks, intended to increase productivity.
27
Question
Measure of value
Answer
A function of money where it can be used to judge the value of a good or service.
28
Question
Medium of exchange
Answer
Money is any asset that is widely acceptable as a medium of exchange when buying goods and services in markets. It facilitates transactions between buyer and seller.
29
Question
Method of deferred payment
Answer
A function of money that allows a system of making payments at a later date.
30
Question
Specialisation
Answer
A method of production where a business or area focuses on the production of a limited scope of products or services to gain greater productive efficiency.