Economics - Economic activity in context (CHAPTER 1)
What is the definition of economics?
The study of how individuals and societies allocate their resources among competing uses to satisfy their needs and enhance their well-being.
What is the difference between microeconomics and macroeconomics?
Microeconomics focuses on individual markets and economic agents (individuals, households and firms) behavior, while macroeconomics looks at the overall economy (GDP, inflation, unemployment, growth, etc.).
What is the production possibility frontier?
A graph that shows the maximum combination of goods and services that can be produced with available resources and technology.
A graph that shows all the combinations of goods and services that the society can produce given the efficient use of available resources over a given period.
What is GDP?
Gross Domestic Product, the total value of goods and services produced in an economy.
What is inflation?
A sustained increase in the general price level of goods and services in an economy over a period of time.
What are the two types of resources?
Human resources (labour) and non-human resources (capital).
What is the concept of trade-off?
A situational decision that involves diminishing or losing on quality, quantity, or property of a set or design in return for gains in other aspects.
An economic situation where one thing increases, and another must decrease.
What is positive economics?
The objective analysis of economic events and phenomena based on facts.
The science that endeavours to describe and explain economic events.
What is normative economics?
The study of how the economy should be or should have been, rather than how it is or was. It suggests policies for improving economic welfare and value judgments based on what is considered to be the correct or normal way of doing something.
The study of how the economy should be, by standing on the posture of a political adviser.
What are the traditional goals of economics?
Increase GDP and reach efficiency (optimality) of consumers and producers' well-being.
What are the economic goals that extend beyond the traditional ones?
Quality of life (health, education,...).
Stability and security (long-term unemployment,...).
Sustainability (technical progress, GDP growth,...).
What are the four essential economic activities ?
Resources management, production, distribution and consumption.
How can the capital be further divided in?
Physical capital (machines,...).
Human capital (knowledge, education,...).
Social capital (institution in which we live).
Natural capital (nature, petrol, minerals,...)
What is production?
The conversion of resources (input) into goods and services (output).
What is essential to distribution?
Trade a product in exchange for an other advantage.
Transfer a product among people.
If Daniel sits on the chair he bought, does it refer to consumption?
Yes
Suppose that points C, B, and A lie on the PPF curve, with point E below and point D above.
Which point(s) indicate that resources have been used efficiently?
A.
B.
C.
Suppose that points C, B, and A lie on the PPF curve, with point E below and point D above.
Which point(s) indicate that resources have been used inefficiently?
E.
Suppose that points C, B, and A lie on the PPF curve, with point E below and point D above.
Which point(s) indicate that the combination of these products and services is unreachable with the available resources?
D.
Why does the concept of scarcity arise when discussing the production possibilities frontier (PPF)?
The quantity of resources is limited. Therefore, only a quantity of goods and services can be produced.
What is an opportunity cost?
The advantage you have to give up when choosing between different options, to buy what you want in terms of other goods or services.
What is the opportunity cost of producing 5 more tables if you go from point A (35 breads and 10 tables) to point B (25 breads and 15 tables)?
10 breads.
What is the law of increasing opportunity cost?
As you increase the production of one good, the opportunity cost to produce the additional good will increase.
Why is the PPF line a curve and not a straight line?
Specialization: resources are not equally suited for all types of production and tasks. Therefore, the frontier line can't indicate a constant opportunity cost.
Suppose that points C (15 guns; 0 swimming pools), B (10 guns; 15 swimming pools), and A (0 guns and 45 swimming pools) lie on the PPF curve, with point E below and point D above for the production of guns and swimming pools.
Which point(s) is the best according to positive economics?
A.
B.
C.
Suppose that points C (15 guns; 0 swimming pools), B (10 guns; 15 swimming pools), and A (0 guns and 45 swimming pools) lie on the PPF curve, with point E below and point D above for the production of guns and swimming pools.
Which point(s) is the best according to normative economics?
In a country with a high level of military operations, point C.
In a country with no military operations, point A.
If there is an economic growth, does the PPF line shift
Yes, it shifts to the right.
If there is technological advance, does the PPF line move?
Yes, it will move outwards for the good(s) that will benefit from the technological advance.