When preparing for a viva in economics, it’s important to understand the core concepts that often arise. This article covers fundamental questions and their detailed answers, making it easier for students and professionals to excel in an economics viva.
Facing an economics viva can be daunting, but with a solid understanding of basic economic principles, you’ll be ready for any question that comes your way. This article covers essential economics concepts commonly asked in viva exams. By familiarizing yourself with these questions and answers, you can ensure you’re well-prepared and confident.
Basic Concepts of Economics
What is Economics?
Economics is the study of how societies use limited resources to produce goods and services and distribute them among individuals. It’s about making decisions in conditions of scarcity. This could involve choices individuals make (microeconomics) or the economy as a whole (macroeconomics).
Difference Between Microeconomics and Macroeconomics
Microeconomics examines the actions and decisions of individual consumers and businesses. It examines how decisions are made regarding the allocation of resources and the pricing of goods and services. On the other hand, macroeconomics deals with the overall economy, including national income, inflation, and unemployment.
Why is Economics Important?
Economics plays a vital role in everyday life by guiding decisions at every level—personal, corporate, and governmental. From budgeting your monthly expenses to crafting national policies, economics helps in understanding the trade-offs involved in making decisions.
Key Economic Models
Demand and Supply
One of the fundamental models in economics is the law of demand and supply. It explains how the price of goods is determined by the relationship between the quantity of goods producers are willing to supply and the amount consumers want to purchase. When demand is higher than supply, prices increase; when supply surpasses demand, prices decrease.
| Factor | Impact on Demand | Impact on Supply |
| Price | Inversely related | Directly related |
| Income | Directly related | No direct effect |
| Technology | No direct effect | Increases supply |
Law of Diminishing Marginal Utility
This law states that as a person consumes additional units of a good, the utility (satisfaction) gained from consuming each extra unit decreases. For example, the first slice of pizza is highly satisfying, but by the fifth slice, the satisfaction is significantly lower.
Opportunity Cost
Opportunity cost represents the value of the next best option that is given up when a decision is made. For instance, if you choose to spend $100 on a new jacket, the opportunity cost might be the concert ticket you could have purchased instead. It’s a core concept in decision-making.
Market Structures
What are the Types of Market Structures?
The four primary types of market structures are perfect competition, monopoly, monopolistic competition, and oligopoly.
Perfect Competition
In a perfect competition scenario, many firms sell identical products, and no single firm can influence the market price. It’s the most efficient market structure, but rarely occurs in reality.
Monopoly
A monopoly exists when a single firm dominates the market with no competition. The firm controls the price and output of the product, often leading to higher prices for consumers.
National Income and Output
What is GDP?
Gross Domestic Product (GDP) measures the total value of all goods and services produced within a country’s borders over a specific period, usually a year. It is a key indicator of a country’s economic performance.
Difference Between GDP and GNP
While GDP measures production within a country’s borders, Gross National Product (GNP) includes the value of all goods and services produced by a country’s residents, whether within the country or abroad.
Inflation and Unemployment
What is Inflation?
Inflation refers to the gradual increase in the cost of goods and services over a period of time.
It decreases the purchasing power of money, meaning you can buy fewer things with the same amount of money.
Types of Inflation
- Demand-pull inflation: When demand exceeds supply, leading to price increases.
- Cost-push inflation: Occurs when production costs rise, pushing up prices.
The Phillips Curve
The Phillips Curve demonstrates an inverse relationship between inflation and unemployment. As inflation rises, unemployment typically falls, and when inflation drops, unemployment tends to rise.
International Trade
What is Comparative Advantage?
Comparative advantage occurs when a country can produce a good at a lower opportunity cost compared to another country.It is the basis for international trade, allowing countries to specialize in the goods they can produce most efficiently.
Free Trade vs. Protectionism
Free trade promotes the exchange of goods without restrictions, while protectionism involves implementing tariffs and quotas to protect domestic industries from foreign competition.
Fiscal and Monetary Policies
What is Fiscal Policy?
Fiscal policy involves government spending and tax policies to influence the economy. For instance, during a recession, the government might increase spending to stimulate demand.
What is Monetary Policy?
Monetary policy is how a central bank controls the money supply and interest rates. By adjusting these levers, the central bank aims to control inflation and stabilize the economy.
Economic Growth and Development
Difference Between Economic Growth and Economic Development
Economic growth refers to the increase in a country’s output of goods and services, typically measured by GDP. Economic development, on the other hand, encompasses improvements in living standards, education, and healthcare.
What Factors Contribute to Economic Growth?
Several factors contribute to economic growth, including:
- Human capital refers to the education and training of the workforce.
- Capital investment: Investments in technology and infrastructure.
- Innovation: Advancements in technology and processes that increase productivity.
Conclusion
Economics is a vast and dynamic field, covering a wide range of topics that are essential for understanding how societies operate. Whether it’s microeconomic theories like demand and supply or macroeconomic policies like fiscal and monetary controls, being well-versed in these basic concepts will help you succeed in any economics viva.
FAQs
One of the most common questions is, “What is the difference between microeconomics and macroeconomics?” It tests your understanding of the two fundamental branches of economics.
Focus on understanding key concepts and their applications. It’s essential to not just memorize definitions but also be able to explain them in real-world contexts.
Positive economics is based on objective facts and figures, while normative economics involves subjective judgments and opinions on what ought to be.
Opportunity cost helps in making informed decisions by considering the value of the next best alternative you give up when making a choice.
Moderate inflation can stimulate economic growth by encouraging spending and investment, but high inflation can erode purchasing power and lead to economic instability.
