The Basic Economic Problem
What is the basic economic problem?
Finite resources and unlimited wants.
What is the difference between microeconomics and macroeconomics?
Microeconomics studies individual markets; macroeconomics looks at the whole economy.
What are the main characteristics of money?
Durable, portable, divisible, and generally accepted.
What is one factor that influences a household’s decision to save money?
Interest rate / Income / Confidence about the future.
In which sector does a farm belong: primary, secondary, or tertiary?
Primary.
What is the difference between economic goods and free goods?
Economic goods are scarce and have an opportunity cost; free goods are abundant and have no opportunity cost.
What are the three key questions the market must answer?
What to produce, how to produce, and for whom to produce.
Name one function of money.
Medium of exchange / Store of value / Unit of account / Standard of deferred payment.
Name a non-wage factor that might influence someone’s choice of occupation.
Job satisfaction, working conditions, job security, promotion opportunities.
What is an economy of scale?
A cost advantage arises with increased output of a product.
What are the four factors of production and their rewards?
Land (rent), Labour (wages), Capital (interest), Enterprise (profit).
What is the price mechanism?
The system where prices rise and fall to allocate scarce resources between competing uses.
What is the difference between a central bank and a commercial bank?
The central bank regulates monetary policy and issues currency; commercial banks deal with consumers and businesses by offering loans and accepting deposits.
Why might a skilled worker earn more than an unskilled worker?
Higher demand, limited supply, more training required.
What is the difference between internal and external growth of a firm?
Internal: expanding from within (e.g., opening new branches); External: merging with or acquiring another firm.
What is opportunity cost?
The next best alternative foregone when a choice is made.
What causes a shift in the demand curve?
Changes in income, tastes, population, price of substitutes/complements, expectations, etc.
Give two services provided by commercial banks.
Accepting deposits, giving loans, providing bank cards, foreign exchange, etc.
What is division of labour?
When production is broken into separate tasks and each worker specializes in one task.
Give one advantage and one disadvantage of a small firm.
Advantage: Flexibility / personal service; Disadvantage: Limited resources / harder to compete.
What does a shift outward in the PPC represent?
Economic growth or an increase in the economy’s productive capacity.
Draw and explain the difference between an extension in supply and an increase in supply.
An extension is a movement along the supply curve due to price increase; an increase is a shift of the supply curve to the right due to a non-price factor.
Explain how the central bank supports the government.
By implementing monetary policy, managing inflation and interest rates, and maintaining financial stability.
How can government policy cause wage differences?
Minimum wage laws, taxation, and training policies can affect earnings.
What is the difference between labour-intensive and capital-intensive production?
Labour-intensive uses more human effort; capital-intensive relies more on machinery.