Basic Economic Terms 2

Date: 2015-10-07; view: 528.

A3. Answer the following questions

1. Why should everyone understand basic economics?

2. Economics has been called 'the study of scarcity and choice'. How does this relate to your budget for the week? How does this relate to your nation's budget?

3. How do different economic systems solve the problem of scarcity? Give specific examples.

Vocabulary Focus

Use the following terms to complete the definitions below:

aggregate demand equilibrium factors of production macroeconomics econometrics exogenous gross national product (GNP) microeconomics

endogenous externalities

1......................(or inputs) are resources used by firms in their production processes,

namely land and the natural resources in it, labour, capital, and (in recent definitions) information.

2......................(or spillovers) are costs imposed on others without their receiving

compensation, or benefits received by others without their paying the proper costs.

3......................concerns the economic factors affecting individual consumers and

companies.

4......................is a state of balance, for example, when supply meets demand.

5......................is the application of mathematical and statistical models to economic

theories and problems.

6......................is the study and analysis of the economy as a whole.

7......................is the total amount spent in a country by consumers, companies, and the

government.

is the total wealth earned or created in a country in a year.

9......................means coming from or controlled from within, e.g. variables that are

totally under the control of a company, a government, etc.

10...................... means coming from or controlled from without; uncontrollable

variables.

Discussion

Expand on each of the following key points.

1. Economics is the study of how people make their living, how they acquire food, shelter, clothing, and other material necessities and comforts. It is a study of the problems they encounter, and of the ways in which these problems can be reduced.

2. During the twentieth century, substantial economic progress has been made in Canada and many other countries. We are producing much more, even though we spend less time at work than did our grandparents.

3. Nevertheless, substantial economic problems remain; such as poverty in less-developed countries and at home, high rates of unemployment, and inflation.

4. One of the things we study in economics is how we can deal with our problems, either through private action or through government policies.

5. In the history of economic thought, the role of government has been controversial.

Adam Smith in 1776 called for the liberation of markets from the tyranny of government control. By 1936, John Maynard Keynes was appealing to the government to accept its responsibilities and to undertake public works in order to get the economy out of the Depression.

6. Important economic goals include the following:

(a) An equilibrium with high employment and price stability.

(b) Efficiency — Allocative efficiency involves the production of the right combination of goods, using the right combination of inputs. Technical efficiency involves producing the most with the smallest quantity of inputs feasible (while working at a reasonable pace).

(c) Equity in the distribution of income.

(d) A satisfactory rate of growth.