1 Economic methodology and the economic problem

Question 1

Why is the term “basic” misleading in the context of the economic problem?

Answer 1

Because the problem is very severe due to scarcity of resources

Question 2

what is the economic problem

Answer 2

how to allocate scarce resources given unlimited wants

Question 3

What does the term “scarce resources” refer to in economics?


Answer 3

Resources that are limited in availability

Question 4

What are the four types of factors of production?

Answer 4

-land ,labour ,capital ,enterprise

Question 5

How are capital resources defined in economics?


Answer 5

As man-made aids to production

Question 6

Give examples of capital resources.


Answer 6

Machinery, tractors, vehicles, factories, and computers

Question 7

What role do entrepreneurs play in the economy?


Answer 7

The entrepreneur is someone who takes risks, innovates, and uses factors production to produce goods and services to make profits

Question 8

What is meant by “land” in the context of factors of production?

Answer 8

Natural resources like farmland and rainforests

Question 9

How is labour defined in economics?

Answer 9

As human resources that produce goods and services

Question 10

What are the three fundamental choices in allocating scarce resources?


Answer 10

What to produce, how to produce it, and for whom to produce

Question 11

How do businesses decide what to produce in a market economy?

Answer 11

Based on consumer demand

Question 12

What influences how businesses decide to produce goods and services?


Answer 12

Cost-effectiveness and productivity

Question 13

Who typically decides for whom to produce in a market economy?

Answer 13

Those with enough income to afford goods and services

Question 14

how can you measure whether the choice you made is good or not

Answer 14

opportunity cost

Question 15

What is the concept of opportunity cost in economics?


Answer 15

the cost of the next best alternative foregone when a decision is made

Question 16

What indicates a good economic decision regarding opportunity cost?

Answer 16

If the value of the current choice is greater than the opportunity cost

Question 17

What should be done if the opportunity cost is greater than the current choice?

Answer 17

Allocate resources towards the opportunity cost instead

Question 18

What is the significance of opportunity cost in economics?

Answer 18

Measures the value of the next best alternative
Helps evaluate the quality of economic choices
Guides resource allocation decisions

Question 19

What are the key components of microeconomics?


Answer 19

Study of how to allocate scarce resources
Understanding of unlimited wants versus limited resources
Analysis of choices made in production and consumption

Question 20

what is ceteris paribus

Answer 20

This assumption is that other things are being
held equal or constant, so nothing else changes

Question 21

What is the main distinction between natural science and social science?


Answer 21

Natural science observes the universe, while social science observes human behaviour.

Question 22

What does economics study

Answer 22

Economics studies human behaviour and the choices that humans make.

Question 23

Why is economics considered a science?


Answer 23

Because economists test their observations and theories.

Question 24

What is the first step in the process of forming a theory in economics?


Answer 24

Economists observe interesting patterns of consumer behaviour.

Question 25

What hypothesis might an economist form based on the observation that lower prices lead to increased consumer spending?


Answer 25

When prices are low, consumers spend more money.

Question 26

How do economists test their predictions?


Answer 26

They collect evidence from real-world observations of consumer behaviour.

Question 27

What happens if the evidence collected does not support the predictions made by economists?

Answer 27

The hypothesis is rejected, and economists start again with new observations.

Question 28

What happens to the theory of demand if exceptions are found during testing?

Answer 28

Sub-theories may be formed to account for those exceptions.

Question 29

What is an example of a sub-theory related to demand theory?

Answer 29

Giffen goods theory

Question 30

What is the concept of Giffen goods?

Answer 30

When prices rise, consumers buy more because they switch their income to afford that good.

Question 31

What is the concept of Veblen goods?


Answer 31

Luxury goods that consumers want to buy more of when prices are high due to status.

Question 32

What is the significance of positive statements in economics?


Answer 32

Positive statements are objective statements can be tested against facts and evidence to be proven or disproven

Question 33

What are normative statements in economics?

Answer 33

Normative statements are opinionated and involve value judgments.

Question 34

What is the process of forming a theory in economics?


Answer 34

1)Observe patterns of consumer behaviour.
2)Form a hypothesis based on observations.
3)Make predictions that can be tested.
4)Collect evidence from real-world observations.
5)If evidence supports predictions, the hypothesis becomes a theory.
6)If evidence contradicts predictions, the hypothesis is rejected.

Question 35

What are the key differences between positive and normative statements in economics?


Answer 35

Positive statements:
Can be tested against evidence.
Based on facts.

Normative statements:
Opinionated and involve value judgments.
Cannot be tested scientifically.