example final exam ; chapter 1

Example of final exam questions

"Chapter 1"

Section A; Multiple choice questions.

1. Scarcity is a problem:

A. measured by the amount of goods available.

B. of the poor, but not the rich.

C. because human wants are unlimited while resources are limited.

D. only in industrialized economies

2. Which of the following is a characteristics of capitalism

A. an economic system characterized by private ownership of resources and market.

B. an economic system that include a mixture of command and market system.

C. a system that answers the what, How, and For Whom question by central authority.

D. an economic system that follows the syariah.

3. Which of the following is not a resource?

A. Land.

B. Labor.

C. Money.

D. Capital.

4. The analysis of the behaviour decision-making units is the definition of :

A. macroeconomics.

B. microeconomics.

C. positive economics

D. normative economics.

5. Which of the following is a normative statement?

A. The government must lower the prize of essential goods to decrease the inflation.

B. the price of this shoes is RM50.

C. I get grade A in macroeconomics exam.

D. An increase in the collage tuition fees will cause a few of students to apply for collage.

6. Which of the following might be considered to be a characteristic of a planned economy?

A. There is no incentive for people to work hard.

B. Goods and services produced reflect consumer sovereignty.

C. Price is relatively unimportant as a means of allocating resources.

D. All income is completely evenly distributed.

Section B;

1.

(a) Differentiate between microeconomics and macroeconomics. (4 marks)

(b) Define the Production Possibilities Curve (PPC). State fours (4) assumptions to illustrate the PPC. (6 marks)

(c) State five characteristics of free market economic system. (5 marks)

(Total: 15 marks)

Section C; Quantitative Question

Combination	motorcycles (thousands)	laptop (thousands)
A	30	0
B	26	1
C	21	2
D	15	3
E	8	4
F	0	5

1. The following table shows the production possibilities for motorcycle and laptop.

(a) Fill in the opportunity cost(motorcycles forgone) of producing the first through the fifth laptops. (2 marks)

(b) Referring to above table, draw the production possibility curve. (4 marks)

(c) Based on the diagram (b), explain the concept of scarcity, choice and opportunity cost. (6 marks)

(d) Between which points (combinations) is the opportunity cost per thousands unit of laptops the highest? (2 marks)

(e) Label point Y inside the curve. Explain why this is inefficient point. (3 marks)

(f) Label point Z outside the curve. Explain why this is an unattainable point. (3 marks)

(g) Based on the diagram, identify all efficient points and explain why these points are efficient. (5 marks)

(h) Does this production possibilities curve reflect the law of increasing opportunity costs? (3 marks)

(i) What is the shape of the production possibilities curve? (2 marks)
(Total: 30 marks)

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Positive economy statement versus normative economy statement.

Positive economy statement versus normative economy statement.

i. Positive economy statement is a statement which based on facts and not value judgement. Can be tested and verified.

Example: Ethiopia is the poorest nation in the world.

ii. Normative economy statement is a statement which is bases on value judgement and on personal opinion. Cannot be tested.

Example: The government of Ethiopia is very inefficient.

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Basic economics concepts

The basic economic concepts.

There are 3 basic economic concepts in relation to economics definition.

i. Scarcity

The problems of economics arise because we do not have enough resources to produce everything we want. The factors of production are limited and the amount of output that can be produced is also limited.

It means that there are not enough available goods for everyone to freely take as much as they want. Due to this, we have to choose the best alternative of goods and services to be produced by the society.

ii. Choice

Because of the resources in the world are limited, we cannot satisfy all our wants and force us to choose. Choice involves a rational decision to be made due to scarcity of resources in order to satisfy unlimited human wants. A choice has to be made among several wants which involves some trade off known as opportunity cost.

iii. Opportunity cost

Opportunity cost is concerned with the problem of choice and the fact of scarcity, forces us to make choices. So, that opportunity cost is defined as the value of the best alternative foregone when a choice is made.

Example:

Dina has RM5 and she would like to buy two things: a book and a pen which cost RM5 each (unlimited wants but limited resources). Dina has to choose either to purchase a book or a pen which would satisfy her needs (choices). If Dina chooses the book, then the pen is the opportunity cost because it is the second best alternative which she has to forgone.

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economics systems

Economic systems

A. Free market economy / capitalist / laissez faire

Definitions

- Is an economy system was operation without government intervention.

Features:

- Decisions are taken by individual and firm with no government intervention.

- It usually associated with a pure capitalist, where land and capital are privately owned.

- The price mechanism used in this system whereby changes in price in response to change in demand and supply have the effect of making demand equal to supply.

Advantaged:

- Individual are free to make their own economic choice

- Freedom to workers and firm to choose where to work and what production methods to use.

Disadvantages:

- Existence of wide gap between the rich and the poor.

- Existence of unemployment problem.

B. Centrally planned or command economy / socialist economy

Definitions

- Is economy was fully controller by government.

Features:

- Decision are taken by the government or central authorities

- It usually associated with a socialist or communist economy system, where land and capital are collectively owned. The government or central authorities plans the allocation of resources.

Advantages:

- Decisions of allocation of resources always are in the interests of society as a whole and with specific national goals.

- Unemployment could be largely avoided if the government carefully planned the allocation of labour.

- Same income distribution

- Produces the goods and services at efficiency level.

Disadvantages:

- Mistake decide in economy (decision made by some people only)

- Technology and innovation are undeveloped because all productions are decided by government.

C. Mixed economy

Definitions

- Is a economy system that incorporates a mixture of private and government ownership or control ( capitalism and socialist)

Features:

- This system use market mechanism and allow government intervention in economy activities.

- Price level determine by price’s mechanism but basic economy’s problem resolved together between government and private.

- Individual and firm free to have properties.

Advantages:

- The government will try to reduce gap of income between rich and poor people. ( taxes and subsidies)

- Government will also control the existence of monopolies.

Disadvantages:

- Business freedom is not totally offered for enterprise.

D. Islamic economy

Definitions:

- Economy which uses Allah's creation natural resources with most efficient and fair way based on Islamic laws.

Features:

- Al Quran and Hadith was the main source in Islamic economics’ activities.

- Individual free to own property

- individual no give priority to profit in business

- fair competition permitted

- free to decide in economics

Advantages:

- Good in the world and afterworld

- Free competition

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Basic economy problems

To achieve maximum satisfaction, people need making the best choice as the guide, so five economics basic question need to be answered first.

1. What to produces

· This problem is concerned with that goods and services will be produces.

· This problem was happen because limited factors of production but demand for the goods and services is not limited.

· So, the firms will produces goods base on demand of the goods and the goods must give the maximum utility to people.

2. How much to produces

· The firm must decide how many quantity of the product should be produces.

· So, it must be base on total demand for the goods.

· If goods are high demand, the firm must produces with the high quantity.

3. How to produces

· How the goods will produces, usually the firm will make decision either use the labor intensive or capital intensive.

· The producers will choice the intensive will decreasing the production cost.

4. For whom to produces

· This is the target market in to sell the product.

· This problem will cause the producer to decide to distribute the goods and services to society.

· The goods are distributing base on income of people.

· Usually, people with high income are able to consume more goods and services than people with low incomes.

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