1.1

• What is the focus of microeconomics?

  Microeconomics is the study of individual markets.
• How does microeconomics differ from macroeconomics?

  Microeconomics focuses on smaller scales like families or individual consumers, while macroeconomics studies countries and larger markets.
• What are the key themes in microeconomics?

  • Markets and market failure
  • Market dynamics affecting prices and behaviors
  • Economic problems of unlimited wants vs. limited resources
• What is market failure?

  Market failure occurs when a country has resources but allocates them to the wrong area.
• What is the economic problem described in microeconomics?

  The economic problem is the existence of unlimited wants but limited resources.
• What are the three principles of the decision-making process in economics?


  1. Trade-off decision making
  2. Trade-offs lead to opportunity costs
  3. People respond to incentives
• What is a trade-off in economic terms?

  A trade-off is when you sacrifice something to save for another thing.
• If someone spends less on clothes to save for a holiday, what economic concept does this illustrate?

  This illustrates the concept of trade-off.
• How does the government influence the price and quantity of goods or services?

  Through taxations and regulations
• What are some of the roles of government in an economic market?

  Promoting competition and fairness, maintaining macroeconomic stability, protecting consumers and the environment
• What is a positive statement in economics?

  An objective statement that can be tested and amended by referring to evidence
• What is a normative statement in economics?


  A subjective statement that carries value judgments about what ought to be
• What is the assumption about a rational consumer?

  They want to maximize their satisfaction
• What do producer firms aim to maximize?

  Profits
• How is profit calculated?

  Profit = total revenue - total cost
• What is the government's objective regarding citizens' welfare?

  To improve the economic and social welfare of citizens
• What does behavioral economics challenge in decision-making assumptions?

  The assumption of rationality in our decisions
• What is the economic problem described in the study material?

  The concept of infinite wants but finite resources
• What does the allocation of resources concern?


  The choices made by economic agents such as households, government, firms, consumers, and workers
• What is opportunity cost?

  The cost of the next best alternative when a choice is made
• What are examples of the factors of production?

  • Labour
  • Capital
  • Enterprise
  • Land
• What is the definition of a want in economics?

  A desire for goods or services
• What is the definition of a need in economics?

  A requirement for survival
• What is a resource in economic terms?

  Something that can be used to get what you want
• What does scarcity refer to in economics?

  Having a limited amount of resources to meet the needs of society
• What does microeconomics study?


  Microeconomics studies the behavior of individuals and firms in making decisions regarding the allocation of resources.
• What is the Production Possibility Frontier (PPF)?

  • A model illustrating how economies allocate resources
  • Represents maximum output of two goods/services
  • Assumes full utilization of resources and fixed technology
• What does the term "ceteris paribus" mean?

  Ceteris paribus is a Latin phrase meaning "all other things being equal" or "holding other things constant."
• Why is ceteris paribus used in economics?

  It is used to isolate the effect of one variable while assuming that all other relevant factors remain unchanged.
• What is an example of ceteris paribus in economics?

  • Law of Demand: "As the price of a good increases, demand decreases, ceteris paribus."
  • Explanation: Price is the only changing factor; other factors like income and preferences remain constant.
• What does the law of demand state when considering ceteris paribus?

  The law of demand states that as the price of a good increases, demand decreases, assuming all other factors remain constant.
• What are the key takeaways of using ceteris paribus in economics?


  1. Focus on One Variable: Helps understand how one variable affects another.
  2. Simplification Tool: Simplifies analysis but doesn't capture full complexity.
  3. Application in Models: Used extensively in economic models and theoretical analysis.
• What does an outward shift of the Production Possibility Frontier (PPF) indicate?

  It indicates an increase in an economy's productive capacity.
• How can the discovery of new oil reserves affect a country's economy?

  It can lead to an increase in natural resources, shifting the PPF outward.
• What role do technological advancements play in an economy?

  They allow an economy to produce more output with the same resources or to produce existing output more efficiently.
• How does human capital development impact productivity?

  Better-educated and more skilled workers can increase productivity, leading to the production of more goods and services.
• What is the effect of increased investment in capital on an economy?

  It can enhance an economy's productive capacity and lead to an outward shift in the PPF.
• Why might resources not be equally suited to producing different products?

  Resources such as land, capital, and labor may have varying efficiencies in producing different goods.
• What happens when the marginal productivity of resources is declining?

  The opportunity cost will increase, requiring more sacrifice to gain additional output.
• What does the law of diminishing returns state?

  Changing one factor while keeping others constant eventually leads to a decline in output after reaching maximum increase.