MAE101 UPDATED ACTUAL Exam
Questions and CORRECT Answers
Economics - CORRECT ANSWER - is a social science that focuses on how societies
(business's, individuals, governments and other groups) react to scarcity and solve economic
questions (such as how to allocate scarce resources and how income is distributed among
individuals and countries)
Microeconomics - CORRECT ANSWER - The study of how households and firms make
decisions and how they interact in markets
Markets - CORRECT ANSWER - Markets generate jobs, incomes, raise welfare, and provide
the means to improve environmental outcomes
Market economy - CORRECT ANSWER - an economy that allocates resources through the
decentralised decisions of many firms and households as they interact in markets for goods and
services
The invisible hand - CORRECT ANSWER - Societys interest will be best met if governments
and other intervening hierarchies don't intervene in markets and let the economy prosper
naturally
Resources - CORRECT ANSWER - Time, land, labour, capital, etc
Scarcity - CORRECT ANSWER - The idea that there is only limited (scarce resources) as
there is limited people (labour resources), property (land resources), etc.
Choice - CORRECT ANSWER - Business' and individuals must make economic choices on
what they value most highly as scarcity prevents them accessing everything
,Opportunity cost - CORRECT ANSWER - The value of next best alternative that is lost
(foregone) when an economic decision is made. Enforces the idea that nothing is free because
even your time is worth something as you could be doing something with it.
Sunk cost - CORRECT ANSWER - In economics and business decision-making, a sunk cost
is a cost that has already been incurred and cannot be recovered. (e.g. If you buy a movie ticket
for $40 and your friend invites you to a party at the same time which you will go to instead)
Benefits of voluntary exchange and competition - CORRECT ANSWER - Competition
reduces prices eroding profit for business' which boosts consumers (society's) living standard
Production possibility frontier - CORRECT ANSWER - All maximum output possibilities for
2 goods given a set of inputs consisting of resources/factors
PPF - Outside the line - CORRECT ANSWER - Not-attainable
PPF - On the line - CORRECT ANSWER - Efficient
PPF - Inside the line - CORRECT ANSWER - inefficient
PPF - Linear - CORRECT ANSWER - Constant opportunity cost
PPF - Curved - CORRECT ANSWER - Increasing opportunity cost
Absolute advantage - CORRECT ANSWER - Occurs when an individual/firm/country has
greater productivity
Comparative advantage - CORRECT ANSWER - Occurs when person/firms/country can
product at a lower opportunity cost
, Marginal analysis - CORRECT ANSWER - The rational consumer/producer maximises
satisfaction/profit when marginal benefit = marginal cost
Law of demand: Substitution effect - CORRECT ANSWER - As price for apples falls they
become relatively cheaper than substitutes (e.g. pears) and quantity demanded for apples rises
Law of Demand: Income effect - CORRECT ANSWER - As price of apples falls purchasing
power of income rises and more apples are bought
Movement along the demand curve - CORRECT ANSWER - Change in the price of the
product
Shift in the demand curve - CORRECT ANSWER - Change in income, substitutes, tastes and
preferences
Positive economics - CORRECT ANSWER - Objective and fact based
- Claims that attempt to describe the world as it is
Normative economics - CORRECT ANSWER - Subjective and value based
- Claims that attempt to prescribe how the world should be
Normal good - CORRECT ANSWER - A good for which, other things being equal and
increase in income leads to an increase in quantity demanded
Inferior good - CORRECT ANSWER - A good for which, other things being equal, an
increase in income leads to an decrease in quantity demanded (e.g. bus rides - as income
increases, you are less likely to take the bus and instead buy a car of taxi
Income elasticity - CORRECT ANSWER - Types of goods - Normal good - Inferior good
Questions and CORRECT Answers
Economics - CORRECT ANSWER - is a social science that focuses on how societies
(business's, individuals, governments and other groups) react to scarcity and solve economic
questions (such as how to allocate scarce resources and how income is distributed among
individuals and countries)
Microeconomics - CORRECT ANSWER - The study of how households and firms make
decisions and how they interact in markets
Markets - CORRECT ANSWER - Markets generate jobs, incomes, raise welfare, and provide
the means to improve environmental outcomes
Market economy - CORRECT ANSWER - an economy that allocates resources through the
decentralised decisions of many firms and households as they interact in markets for goods and
services
The invisible hand - CORRECT ANSWER - Societys interest will be best met if governments
and other intervening hierarchies don't intervene in markets and let the economy prosper
naturally
Resources - CORRECT ANSWER - Time, land, labour, capital, etc
Scarcity - CORRECT ANSWER - The idea that there is only limited (scarce resources) as
there is limited people (labour resources), property (land resources), etc.
Choice - CORRECT ANSWER - Business' and individuals must make economic choices on
what they value most highly as scarcity prevents them accessing everything
,Opportunity cost - CORRECT ANSWER - The value of next best alternative that is lost
(foregone) when an economic decision is made. Enforces the idea that nothing is free because
even your time is worth something as you could be doing something with it.
Sunk cost - CORRECT ANSWER - In economics and business decision-making, a sunk cost
is a cost that has already been incurred and cannot be recovered. (e.g. If you buy a movie ticket
for $40 and your friend invites you to a party at the same time which you will go to instead)
Benefits of voluntary exchange and competition - CORRECT ANSWER - Competition
reduces prices eroding profit for business' which boosts consumers (society's) living standard
Production possibility frontier - CORRECT ANSWER - All maximum output possibilities for
2 goods given a set of inputs consisting of resources/factors
PPF - Outside the line - CORRECT ANSWER - Not-attainable
PPF - On the line - CORRECT ANSWER - Efficient
PPF - Inside the line - CORRECT ANSWER - inefficient
PPF - Linear - CORRECT ANSWER - Constant opportunity cost
PPF - Curved - CORRECT ANSWER - Increasing opportunity cost
Absolute advantage - CORRECT ANSWER - Occurs when an individual/firm/country has
greater productivity
Comparative advantage - CORRECT ANSWER - Occurs when person/firms/country can
product at a lower opportunity cost
, Marginal analysis - CORRECT ANSWER - The rational consumer/producer maximises
satisfaction/profit when marginal benefit = marginal cost
Law of demand: Substitution effect - CORRECT ANSWER - As price for apples falls they
become relatively cheaper than substitutes (e.g. pears) and quantity demanded for apples rises
Law of Demand: Income effect - CORRECT ANSWER - As price of apples falls purchasing
power of income rises and more apples are bought
Movement along the demand curve - CORRECT ANSWER - Change in the price of the
product
Shift in the demand curve - CORRECT ANSWER - Change in income, substitutes, tastes and
preferences
Positive economics - CORRECT ANSWER - Objective and fact based
- Claims that attempt to describe the world as it is
Normative economics - CORRECT ANSWER - Subjective and value based
- Claims that attempt to prescribe how the world should be
Normal good - CORRECT ANSWER - A good for which, other things being equal and
increase in income leads to an increase in quantity demanded
Inferior good - CORRECT ANSWER - A good for which, other things being equal, an
increase in income leads to an decrease in quantity demanded (e.g. bus rides - as income
increases, you are less likely to take the bus and instead buy a car of taxi
Income elasticity - CORRECT ANSWER - Types of goods - Normal good - Inferior good
