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A1 THE NATURE OF ECONOMICS

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The branch of economics that looks at how individuals, households and firms make decisions about the allocation of resources.

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Microeconomics

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Name the three major economic agents in microeconomics.

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ConsumersGovernmentFirms

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Name three advantages of a free market economy.

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1. Efficient use of resources due to competition2. Innovation due incentives3. Wider variety of goods/ increased consumer choice.4. Greater flexibility/adaptability5. Lower prices due to competition

TRUE OR FALSEFriedrich Hayek advocated for a free market economy with some government intervention. Adam Smith believes only in the free market.

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FALSEAdam Smith believes in the free market but with minimal government intervention---a regulatory role when required. Hayek belives all government intervention is inevitably bad.

Which of the following words/phrases are associated with Karl Marx's perspective on the allocation of resources?

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EfficiencyEqualityLaissez FairePlanned economyGovernment InterventionSocialism

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planned economy socialism equalitygovernment intervention

A bottle of potable (drinking) water offered to a captain sailing across the Atlantic ocean is an example of a/an...

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an economic good because it involves an opportunity cost.

Define the term opportunity cost.

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The cost of an activity in terms of the next best alternative foregone.

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Who is rational consumer?

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A consumer who aims to maximise their utility and minimise their costs.It occurs when the marginal benefit is greater than or equal to the marginal cost of a decision.

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TRUE/FALSEWhen consumers or firms aim to get a good enough outcome, this is called optimality.

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FALSEThis is called satisficing.Optimality means best outcome

A simplification of reality is called a/an

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model

REVIEW SHEET

Lorem ipsum dolor sit amet consecteteur adisciping

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List THREE assumptions of rational consumer behaviour?

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1. Consumers always act in their own self-interest.2. Consumers have perfect information.3. Consumers are able to calculate or measure their utility.4. Consumers act independently when making decisions.5. Consumers always aim to maximise utility.

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State THREE factors that often bring about irrational consumer behaviour

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1. Habitual Behaviour---the consumer is not carefully weighing the benefits and costs of a decision.2. Computational limitations---limited time, limited cognitive ability, limited knowledge3. Influenced by others, rather than acting independently.

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At point E, the opportunity cost of producing 8 trucks is...

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2 hamburgers20 hamburgers could have been produced but at point E, only 18 have been produced. The difference is the opportunity cost.

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Which point(s) on the PPF represent productive efficiency?

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A, B, C, E and F

The allocation of resources moves from D to B. How many additional trucks and hamburgers will be obtained?

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12 trucks and 8 hamburgers

Why does the PPF slope downwards?

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Scarcity---finite resources vs unlimited resources

The combination of trucks and hamburgers moves from point A to point B? what is the opportunity cost of 12 more hamburgers?

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2 trucks

The combination of trucks and hamburgers moves from point E to point B? what is the opportunity cost of 8 trucks?

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6 hamburgers

What is the opportunity cost of moving from D to E?

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Zero

What does point H represent?

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Unobtainable given the present resources available.

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Which of the following economic concepts is NOT depcited on the PPF? Specialisation Productive efficiencyAllocative efficiencyDiminishing marginal utility

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Diminishing marginal utility

What factor of production is depicted in the picture?

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Land

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What factor of production is depicted in the picture?

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Capital---specifically infrastructure

Recent flooding in the State of North Carolina, USA over the past 3 days has led to devastation? How would this impact the PPF for North Carolina?

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The PPF would shift inwards.

A highly predictable outcome that has been tested and proven true repeatedly is called a...

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A principal or law.

TRUE/FALSEThe fallacy of composition states that what is good for the individual is not necessarily good for the group.

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TRUEFor example if everyone starts saving for a rainy day. The entire economy could suffer as consumption falls. A recession would affect most people. If everyone at a concert starts to stand, eventually no one can see.