1
ECON0002 TERM 1 ACTUAL EXAM BANK /
QUESTIONS AND VERIFIED SOLUTIONS 2024/2025
GRADED A+.
What is the 90/10 ratio? - (ANSWER)average income of the richest 10% divided
by the average income of the poorest 90%
What does disposable income not measure? - (ANSWER)quality of social and
physical environment, amount of free time, goods and services you can't buy,
goods and services that are produced within the household
How to calculate nominal gdp? - (ANSWER)sum of (price of good i x quantity of
good i)
How to calculate real gdp? - (ANSWER)multiply prices from base year by
quantities for year of measurement
How do we compare living standards across countries? - (ANSWER)use estimates
of GDP per capita in a common set of prices (purchasing power parity PPP prices).
Because exchange rates stop you comparing countries accurately
What is the ratio scale? - (ANSWER)With GDP per capita doubling up the vertical
axis
what is the ratio scale used for? - (ANSWER)comparing growth rates
, 2
What does a steeper line in the ratio scale chart mean? - (ANSWER)Faster growth
rate
growth rate = - (ANSWER)change in income/original level of income
what does a growth rate of 100% mean? - (ANSWER)level of income doubles
What is technology in economics? - (ANSWER)a process that takes a set of
materials and other inputs, including the work of people and machines, and
creates an output
Examples of hockey stick graph - (ANSWER)Gross domestic product per capita,
productivity of labour, connectivity of the various parts of the world, impact of
the economy on the global environment
What is a centrally planned economic system? - (ANSWER)The government
controls production and decides how goods should be distributed, and to whom
What does a market economy consist of? - (ANSWER)Private property and
markets
What does a capitalist economy consist of? - (ANSWER)Private property, markets
and firms
, 3
What is absolute advantage? - (ANSWER)If the inputs to produce a good are less
than in some other person or country
What is comparative advantage? - (ANSWER)If the cost of producing an
additional unit of a good relative to the cost of producing another good is lower
than another person or country's cost to produce the same two goods
Explanations for why capitalism is less dynamic? - (ANSWER)private property is
not secure (weak enforcement of the law or expropriation), markets are not
competitive, firms owned by people only because of connections
How can firms stay ahead of the competition in capitalist economies? -
(ANSWER)By constantly innovating
How do governments help economies work? - (ANSWER)They adjudicate disputes
over ownership and enforce property rights necessary for markets to work
Why is an equilibrium at subsistence level an equilibrium? - (ANSWER)Because
movements away from subsidence income are self-correcting
Average product of labour = - (ANSWER)total output/total number of workers
What does a production function describe? - (ANSWER)the relationship between
the amount of output produced and the amount of input used to produce it
, 4
What is diminishing average product of labour? - (ANSWER)Where as more
labour is used in a given production process, the average product of labour falls
What can diminishing average product of labour be caused by? example -
(ANSWER)More labour devoted to a fixed quantity of land or more (inferior) land
bought into cultivation
malthus's model - (ANSWER)diminishing average product of labour and increased
living standards created population increase which both led to Malthusian trap
what variables stay constant in the malthus model equilibrium? - (ANSWER)size
of population, income of population
What is subsistence level? - (ANSWER)The level of living standards (measured by
consumption or income) such that the population will not grow or decline
What does Malthus' model predict? - (ANSWER)improvements in technology will
not raise living standards if the average product of labour diminishes as more
labour is applied to a fixed amount of land, or population grows in response to
increases in real wages
Malthusian trap theory - (ANSWER)population will be constant when the wage is
at subsistence level, it will rise when the wage is above subsistence level, and it
will fall when it is below subsistence level
ECON0002 TERM 1 ACTUAL EXAM BANK /
QUESTIONS AND VERIFIED SOLUTIONS 2024/2025
GRADED A+.
What is the 90/10 ratio? - (ANSWER)average income of the richest 10% divided
by the average income of the poorest 90%
What does disposable income not measure? - (ANSWER)quality of social and
physical environment, amount of free time, goods and services you can't buy,
goods and services that are produced within the household
How to calculate nominal gdp? - (ANSWER)sum of (price of good i x quantity of
good i)
How to calculate real gdp? - (ANSWER)multiply prices from base year by
quantities for year of measurement
How do we compare living standards across countries? - (ANSWER)use estimates
of GDP per capita in a common set of prices (purchasing power parity PPP prices).
Because exchange rates stop you comparing countries accurately
What is the ratio scale? - (ANSWER)With GDP per capita doubling up the vertical
axis
what is the ratio scale used for? - (ANSWER)comparing growth rates
, 2
What does a steeper line in the ratio scale chart mean? - (ANSWER)Faster growth
rate
growth rate = - (ANSWER)change in income/original level of income
what does a growth rate of 100% mean? - (ANSWER)level of income doubles
What is technology in economics? - (ANSWER)a process that takes a set of
materials and other inputs, including the work of people and machines, and
creates an output
Examples of hockey stick graph - (ANSWER)Gross domestic product per capita,
productivity of labour, connectivity of the various parts of the world, impact of
the economy on the global environment
What is a centrally planned economic system? - (ANSWER)The government
controls production and decides how goods should be distributed, and to whom
What does a market economy consist of? - (ANSWER)Private property and
markets
What does a capitalist economy consist of? - (ANSWER)Private property, markets
and firms
, 3
What is absolute advantage? - (ANSWER)If the inputs to produce a good are less
than in some other person or country
What is comparative advantage? - (ANSWER)If the cost of producing an
additional unit of a good relative to the cost of producing another good is lower
than another person or country's cost to produce the same two goods
Explanations for why capitalism is less dynamic? - (ANSWER)private property is
not secure (weak enforcement of the law or expropriation), markets are not
competitive, firms owned by people only because of connections
How can firms stay ahead of the competition in capitalist economies? -
(ANSWER)By constantly innovating
How do governments help economies work? - (ANSWER)They adjudicate disputes
over ownership and enforce property rights necessary for markets to work
Why is an equilibrium at subsistence level an equilibrium? - (ANSWER)Because
movements away from subsidence income are self-correcting
Average product of labour = - (ANSWER)total output/total number of workers
What does a production function describe? - (ANSWER)the relationship between
the amount of output produced and the amount of input used to produce it
, 4
What is diminishing average product of labour? - (ANSWER)Where as more
labour is used in a given production process, the average product of labour falls
What can diminishing average product of labour be caused by? example -
(ANSWER)More labour devoted to a fixed quantity of land or more (inferior) land
bought into cultivation
malthus's model - (ANSWER)diminishing average product of labour and increased
living standards created population increase which both led to Malthusian trap
what variables stay constant in the malthus model equilibrium? - (ANSWER)size
of population, income of population
What is subsistence level? - (ANSWER)The level of living standards (measured by
consumption or income) such that the population will not grow or decline
What does Malthus' model predict? - (ANSWER)improvements in technology will
not raise living standards if the average product of labour diminishes as more
labour is applied to a fixed amount of land, or population grows in response to
increases in real wages
Malthusian trap theory - (ANSWER)population will be constant when the wage is
at subsistence level, it will rise when the wage is above subsistence level, and it
will fall when it is below subsistence level
