ECS1500: ECONOMICS QUESTIONS AND COMPLETE
ANSWERS
UNLIMITED WANTS correct answers The insatiable desire of consumers for goods and services that will
give them satisfaction or utility
LIMITED MEANS correct answers Things that limit our ability to fulfil our wants and needs; time, skills,
and money.
OPPORTUNITY COSTS correct answers The loss of potential gain from other alternatives when one
alternative is chosen.
IMPORTANT DECISION MAKERS IN THE ECONOMY correct answers Households; Firms; Goverments
THE PRODUCTION PROBLEM correct answers What goods should be produced? How scarce resources
will be allocated? What quantities can be produced? How production will take place?
THE DISTRIBUTION PROBLEM correct answers How the total of goods and services will distributed.
THE COMMAND ECONOMY correct answers All economic decisions are made by the government.
THE MARKET ECONOMY correct answers Economic decisions are made by individuals or the open
market.
MARKETS correct answers Meeting place where buyers and sellers come together to determine prices.
PRICES correct answers The amount of money expected, required, or given in payment for something.
MARKET EQUILIBRIUM correct answers A situation in which quantity demanded equals quantity
supplied.
,A MODEL OF THE MARKET ECONOMY: DEVELOPING A MODEL correct answers Simplified
representations of the real world.
THE MARKET ECONOMY / THE ECONOMIC CIRCUIT / CIRCULAR FLOW MODEL correct answers
ECONOMIC MAGNITUDES correct answers Total production of the economy (P); Total Expenditure of the
Market (E); Total Income Earned (I) P = E = I
VARIABLES WITH A POSITIVE RELATIONSHIP correct answers Move in the same direction; Positive or
Direct (Linear) Relationship.
VARIABLES WITH A NEGATIVE RELATIONSHIP correct answers Move in an opposite direction; Negative or
Inverse (Non-Linear) Relationship
VARIABLES THAT ARE UNRELATED correct answers Denoted by a straight - line (Horizontal or Vertical);
Either zero (Horizontal) or Infinitely Large (Vertical Curve)
TIME SERIES GRAPH correct answers Measures times on the horizontal axis and any other variable which
we want to relate to time on the vertical axis.
CHANGES IN DEMAND correct answers An increase in demand leads to an increase in price. An increase
in price leads to an increase in demand.
CHANGES IN SUPPLY correct answers An increase in supply will result in a fall in the price of the product
and an increase in the quantity exchanged. Vice versa.
THE CETERIS PARIBUS CONDITION correct answers All other things remain the same.
ELASTICITY correct answers The measure of responsivness or sensibility.
, PRICE ELASTICITY OF DEMAND correct answers A measure of how much the quantity demanded of a
good responds to a change in the price of that good, computed as the percentage change in quantity
demanded divided by the percentage change in price.
PRICE ELASTICITY OF SUPPLY correct answers A measure of how much the quantity supplied of a good
responds to a change in the price of that good, computed as the percentage change in quantity supplied
divided by the percentage change in price.
ELASTICITY : REASONS FOR USE correct answers 1. Compare the price sensitivities with different
products.
2. They want to determine whether one marke is more price sensitive than another.
3. Elasticity is a unit free measure
4. Elasticities allow economists to quantify the differences among markets without standardising the
units of measurement.
INELASTIC correct answers When elasticity is small (Between 0 and 1 in absolute value)
INELASTIC DEMAND correct answers Demand in which changes in price have little or no effect on the
amount demanded.
INELASTIC SUPPLY correct answers A change in price has relatively little effect on quantity supplied; the
percentage change in quantity supplied is less than the percentage change in price; the price elasticity of
supply has a value less than 1.0
MICROECONOMICS correct answers The prices and quantities of specific goods and services are studied
in individual markets and an attet is made to explain changes in these markets.
MACROECONOMICS correct answers Global economic magnitudes such as the total production of a
country; total employment; and the inflation rate.
MACROECONOMICS : OBJECTIVES correct answers Simplify the economic system by means of
aggregation (combining); combine seperate markets into a single market.
1. Full employment
ANSWERS
UNLIMITED WANTS correct answers The insatiable desire of consumers for goods and services that will
give them satisfaction or utility
LIMITED MEANS correct answers Things that limit our ability to fulfil our wants and needs; time, skills,
and money.
OPPORTUNITY COSTS correct answers The loss of potential gain from other alternatives when one
alternative is chosen.
IMPORTANT DECISION MAKERS IN THE ECONOMY correct answers Households; Firms; Goverments
THE PRODUCTION PROBLEM correct answers What goods should be produced? How scarce resources
will be allocated? What quantities can be produced? How production will take place?
THE DISTRIBUTION PROBLEM correct answers How the total of goods and services will distributed.
THE COMMAND ECONOMY correct answers All economic decisions are made by the government.
THE MARKET ECONOMY correct answers Economic decisions are made by individuals or the open
market.
MARKETS correct answers Meeting place where buyers and sellers come together to determine prices.
PRICES correct answers The amount of money expected, required, or given in payment for something.
MARKET EQUILIBRIUM correct answers A situation in which quantity demanded equals quantity
supplied.
,A MODEL OF THE MARKET ECONOMY: DEVELOPING A MODEL correct answers Simplified
representations of the real world.
THE MARKET ECONOMY / THE ECONOMIC CIRCUIT / CIRCULAR FLOW MODEL correct answers
ECONOMIC MAGNITUDES correct answers Total production of the economy (P); Total Expenditure of the
Market (E); Total Income Earned (I) P = E = I
VARIABLES WITH A POSITIVE RELATIONSHIP correct answers Move in the same direction; Positive or
Direct (Linear) Relationship.
VARIABLES WITH A NEGATIVE RELATIONSHIP correct answers Move in an opposite direction; Negative or
Inverse (Non-Linear) Relationship
VARIABLES THAT ARE UNRELATED correct answers Denoted by a straight - line (Horizontal or Vertical);
Either zero (Horizontal) or Infinitely Large (Vertical Curve)
TIME SERIES GRAPH correct answers Measures times on the horizontal axis and any other variable which
we want to relate to time on the vertical axis.
CHANGES IN DEMAND correct answers An increase in demand leads to an increase in price. An increase
in price leads to an increase in demand.
CHANGES IN SUPPLY correct answers An increase in supply will result in a fall in the price of the product
and an increase in the quantity exchanged. Vice versa.
THE CETERIS PARIBUS CONDITION correct answers All other things remain the same.
ELASTICITY correct answers The measure of responsivness or sensibility.
, PRICE ELASTICITY OF DEMAND correct answers A measure of how much the quantity demanded of a
good responds to a change in the price of that good, computed as the percentage change in quantity
demanded divided by the percentage change in price.
PRICE ELASTICITY OF SUPPLY correct answers A measure of how much the quantity supplied of a good
responds to a change in the price of that good, computed as the percentage change in quantity supplied
divided by the percentage change in price.
ELASTICITY : REASONS FOR USE correct answers 1. Compare the price sensitivities with different
products.
2. They want to determine whether one marke is more price sensitive than another.
3. Elasticity is a unit free measure
4. Elasticities allow economists to quantify the differences among markets without standardising the
units of measurement.
INELASTIC correct answers When elasticity is small (Between 0 and 1 in absolute value)
INELASTIC DEMAND correct answers Demand in which changes in price have little or no effect on the
amount demanded.
INELASTIC SUPPLY correct answers A change in price has relatively little effect on quantity supplied; the
percentage change in quantity supplied is less than the percentage change in price; the price elasticity of
supply has a value less than 1.0
MICROECONOMICS correct answers The prices and quantities of specific goods and services are studied
in individual markets and an attet is made to explain changes in these markets.
MACROECONOMICS correct answers Global economic magnitudes such as the total production of a
country; total employment; and the inflation rate.
MACROECONOMICS : OBJECTIVES correct answers Simplify the economic system by means of
aggregation (combining); combine seperate markets into a single market.
1. Full employment
