Basic concepts and definitions (Chapters 1-2)

Question 1

scarcity

Answer 1

• in relation to wants, existing resources are inadequate

Question 2

economics

Answer 2

• the study of how society manages its scarce resources

Question 3

resources

Answer 3

• land, labour, and capital

Question 4

opportunity costs

Answer 4

• cost of something in terms of what is given up

Question 5

households

Answer 5

• make consistent decisions
• maximize well being
• principal owners of resources

Question 6

firms

Answer 6

• make consistent decisions
• maximize profit
• principal users of resources

Question 7

government

Answer 7

• all officials or agencies under direct control of the federal, provincial, or municipal governments

Question 8

foreign sector

Answer 8

• economic agents outside the domestic economy

Question 9

market

Answer 9

• area in which buyers and sellers negotiate the exchange of a commodity

Question 10

circular flow diagram

Answer 10

• clockwise flow is real (physical)
• counterclockwise flow is monetary
• government flows - real and monetary

Question 11

microeconomics

Answer 11

• study of the behaviour of individual agents and markets

Question 12

macroeconomics

Answer 12

• focuses on broad aggregates such as overall production, employment, prices, etc.

Question 13

elements of an economic model

Answer 13

• theory
• assumptions
• hypothesis
• variables
• dangers

Question 14

endogenous variable

Answer 14

• induced, dependent

- variables explained within a theory

Question 15

exogenous

Answer 15

• autonomous, independent

- outside variables

Question 16

key issues in macroeconomics

Answer 16

• unemployment
• inflation
• growth
• productivity
• interest rates
• exchange rates
• deficits and debt
• fiscal and monetary policy
• trade and trade policy