1. 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).
2. 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?
