ECON104- definitions Exam Questions and
Answers
Utility - -happiness/satisfaction, different people derive utility from different things
-Opportunity Cost - -the loss of potential gain from other alternatives when one
alternative is chosen.
-Production possibility frontier/model - -represents the maximum production of 2 goods
possible given current technology and resources
-absolute advantage - -the ability of an individual or group to carry out a particular
economic activity more efficiently than another individual or group.
-Comparative advantage - -the ability of an individual or group to carry out a particular
economic activity (such as making a specific product) more efficiently than another
activity.
-calculate opportunity cost of trade- goods produced - -Good 2/ Good 1
do this for both groups and find who has the comparative advantage (higher goods
produced is better)
-calculate opportunity cost of trade- labour required - -Good 1/ Good 2
do this for both groups and find who has the comparative advantage (lower hours is better)
-market - -any place or situation in which buyers and sellers exchange goods or services.
-law of demand - -the quantity demanded of a good falls as the price rises (or vice versa)
-The law of supply - -there will be greater quantity supplied at a higher price
-Quantity equilibrium - -when the quantity supplied is equal to the quantity demanded
-what happens when the price of a good changes - -there will be a movement along the
existing supply or demand curve
- increase: movement up the curve
- decrease: movement down the curve
-what happens if other factors change - -their is a shift of the supply or demand curve
-inferior good - -a good that consumers demand less of when their incomes increase
-substitute goods - -goods that can be used to replace the purchase of similar goods when
prices rise
Answers
Utility - -happiness/satisfaction, different people derive utility from different things
-Opportunity Cost - -the loss of potential gain from other alternatives when one
alternative is chosen.
-Production possibility frontier/model - -represents the maximum production of 2 goods
possible given current technology and resources
-absolute advantage - -the ability of an individual or group to carry out a particular
economic activity more efficiently than another individual or group.
-Comparative advantage - -the ability of an individual or group to carry out a particular
economic activity (such as making a specific product) more efficiently than another
activity.
-calculate opportunity cost of trade- goods produced - -Good 2/ Good 1
do this for both groups and find who has the comparative advantage (higher goods
produced is better)
-calculate opportunity cost of trade- labour required - -Good 1/ Good 2
do this for both groups and find who has the comparative advantage (lower hours is better)
-market - -any place or situation in which buyers and sellers exchange goods or services.
-law of demand - -the quantity demanded of a good falls as the price rises (or vice versa)
-The law of supply - -there will be greater quantity supplied at a higher price
-Quantity equilibrium - -when the quantity supplied is equal to the quantity demanded
-what happens when the price of a good changes - -there will be a movement along the
existing supply or demand curve
- increase: movement up the curve
- decrease: movement down the curve
-what happens if other factors change - -their is a shift of the supply or demand curve
-inferior good - -a good that consumers demand less of when their incomes increase
-substitute goods - -goods that can be used to replace the purchase of similar goods when
prices rise
