Economics Foundations of Economics Syllabus

Foundations of Economics syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Foundations of Economics in Economics, not a summary of it.

1. 1

   The Economic Problem

   4 topics

   • Scarcity, Choice, and Opportunity Cost
   • Factors of Production
   • Production Possibility Frontier
   • Positive vs Normative Economics
2. 2

   Economic Systems

   4 topics

   • Market Economy
   • Command Economy
   • Mixed Economy
   • The Role of Government and Markets
3. 3

   Economic Methodology

   3 topics

   • Models and Assumptions
   • Microeconomics vs Macroeconomics
   • The Circular Flow of Income
4. 4

   Specialisation and Exchange

   3 topics

   • Division of Labour
   • Comparative and Absolute Advantage
   • Functions of Money

Foundations of Economics flashcards for Economics

20 of 50 cards from the Foundations of Economics deck — real questions with worked answers.

1. Define economics as a social science.

   Economics is the social science that studies how individuals and societies allocate scarce resources among unlimited competing wants to satisfy human needs.

2. What is scarcity, the central economic problem?

   Scarcity is the condition in which limited resources are insufficient to satisfy unlimited human wants, forcing every society to make choices about resource allocation.

3. Define opportunity cost.

   Opportunity cost is the value of the next-best alternative forgone when a choice is made. Choosing one option means giving up the benefit of the best alternative not chosen.

4. If a farmer uses land to grow wheat that could instead have grown corn worth \$500, what is the opportunity cost?

   The opportunity cost of growing wheat is \$500 — the value of the next-best forgone alternative (the corn).

5. Name the three fundamental economic questions every society must answer.

   1) What to produce? 2) How to produce it? 3) For whom to produce (how output is distributed)?

6. List the four factors of production.

   Land (natural resources), Labour (human effort), Capital (man-made means of production), and Enterprise/Entrepreneurship (organizing factors and bearing risk).

7. Match each factor of production to its factor income/reward.

   Land earns rent; Labour earns wages; Capital earns interest; Enterprise earns profit.

8. In economics, what does 'capital' mean, and how does it differ from the everyday meaning?

   Economic capital refers to man-made goods used to produce other goods (machinery, tools, factories), not money. Money is financial capital, but the factor of production is physical/real capital.

9. What is the role of the entrepreneur among the factors of production?

   The entrepreneur organizes the other three factors (land, labour, capital), makes production decisions, innovates, and bears the risk and uncertainty of the venture in return for profit.

10. What does a Production Possibility Frontier (PPF) show?

    The PPF shows the maximum combinations of two goods an economy can produce when all resources are fully and efficiently employed, given current technology.

11. On a PPF diagram, what do points inside, on, and outside the curve represent?

    Inside: inefficient/underutilized resources (unemployment). On the curve: productive efficiency (full employment). Outside: currently unattainable given resources and technology.

12. How is opportunity cost illustrated on a PPF?

    Moving along the PPF requires giving up some of one good to produce more of another; the amount of the first good sacrificed is the opportunity cost of the extra unit of the second good.

13. Why is the PPF typically bowed outward (concave to the origin)?

    Because of increasing opportunity cost: resources are not equally suited to producing both goods, so producing more of one good sacrifices increasing amounts of the other.

14. What does an outward shift of the entire PPF represent?

    Economic growth — an increase in productive capacity from more/better resources, improved technology, or increased factor productivity.

15. Distinguish positive economics from normative economics.

    Positive economics deals with objective, factual statements that can be tested (what is). Normative economics involves value judgments and opinions about what ought to be.

16. Classify: 'A rise in interest rates will reduce consumer borrowing.' Positive or normative?

    Positive — it is a testable, factual cause-and-effect statement about what is.

17. Classify: 'The government should raise taxes on the rich to reduce inequality.' Positive or normative?

    Normative — it contains a value judgment ('should') about what ought to be.

18. What is a market (free) economy?

    An economic system in which resource allocation and the answers to what/how/for whom are decided by the price mechanism through the interaction of supply and demand, with private ownership and minimal government intervention.

19. State two key advantages and two disadvantages of a market economy.

    Advantages: efficient allocation via the price mechanism, incentives to innovate and be productive, consumer choice. Disadvantages: market failures (externalities, public goods), income inequality, and under-provision of merit goods.

20. What is a command (planned) economy?

    An economic system in which the government/central planner owns the factors of production and decides what, how, and for whom to produce, replacing the price mechanism with central planning.

See more Foundations of Economics flashcards →

Planning Foundations of Economics for Economics

Foundations of Economics (Economics) FAQ