Economics Exercise – Topic 1.0

1. What is the definition of Economics?

2. What is the meaning of scarce resource? Provide 2 examples of scarce resource (other than time & money).

3. Why is the management of scarce resource important?

4. Identify and explain the 2 types of economics. Can you give one example for each type of economics?

5. What are the 2 methods of studying economics? What does each method involve?

6. What is an opportunity cost?

7. For each of the following situations, describe the potential opportunity cost(s):

• Studying for your economics test

• Driving to Sunway Pyramid to buy a Wii Console and games

• A company spending an extra $10 million dollar for research

• Asking girl/guy A out for a date.

8. Draw a Production Possibility Frontier (PPF) graph with the Y-axis for product A, and X-axis for Product B. Designate 2 points (C & D) on the curve.

a. What are the different quantities of product A and B produced at point C and D? What principle does point C and D illustrate?

b. Designate a point (E) to show resources being used inefficiently. Give 2 examples how this inefficiency can occur.

c. Designate one more point (F) outside of the curve. What does this mean? How can a firm’s PPF grow to that point? Give 2 examples.

d. Draw a new PPF graph for a growing firm (over the years).

9. One of the economic principles states that “People respond to incentives.” Explain this principle and provide a relevant example.

10. Explain what a free market (or capitalistic economy) means? Planned economy? What about a mixed

economy?