1 Economic Methodology And The Economic Problem

Question 1

What is ceteris paribus?

Answer 1

The assumption that all other things are equal or constant

Question 2

What is a positive statement?

Answer 2

Objective and can be tested with factual evidence

Consequently can be rejected or accepted

Question 3

What is a normative statement?

Answer 3

Based on subjective, value judgements rather than factual evidence

Question 4

What can value judgements influence or affect?

Answer 4

Economic decision making and policy

Question 5

What is the purpose of economic activity?

Answer 5

To produce good and services which satisfy consumer needs and wants

Question 6

What decisions are made about how to use scarce resources?

Answer 6

What is to be produced?
How should it be produced?
Whoo will benefit from the goods and services produced?

Question 7

What are the factors of production?

Answer 7

CELL

Capital, enterprise, land and labour

Question 8

What is capital?

Answer 8

Goods which can be used in the production process e.g. Machines, buildings

Question 9

What is the reward/incentive of capital?

Answer 9

Interest from investment

Question 10

What is enterprise?

Answer 10

The willingness to take risk to make a profit.

Those who innovate to make a good with other factors of production

Question 11

What is the reward/incentive of enterprise?

Answer 11

To make a profit

Is an incentive to take risks

Question 12

What is land?

Answer 12

Natural resources such as oil, coal, wheat and water

Question 13

What is the reward from land?

Answer 13

Rent

Question 14

What is labour?

Answer 14

Human capital

The workforce of an economy

Question 15

What is the reward from labour?

Answer 15

Wages

Question 16

What is the basic economic problem?

Answer 16

How are unlimited wants satisfied with limited resources

Question 17

What is opportunity cost?

Answer 17

The cost of a choice of the next best alternative

Question 18

What is a PPF

Answer 18

A production possibility frontier

Question 19

What do PPFs show

Answer 19

The productive potential of an economy, usong a combination of two goods or services, when resources are fully and efficiently employed

Question 20

What do points on the line of a PPF show?

Answer 20

The most efficient combinations of output on the PPF

Question 21

What is the law of diminishing returns?

Answer 21

The opportunity cost of producing more goods increases, in terms of lost units of another good that could have been produced

Question 22

What does a point inside the PPF curve mean?

Answer 22

Production is inefficient and resources are not being used to their full potential
Unemployment of economic resources

Question 23

What does a point outside the PPF mean?

Answer 23

Production is not yet attainable with current resources

Question 24

How can economic growth be shown on a PPF?

Answer 24

By an outward shift of the curve

Question 25

How would economic decline be depicted on a PPF?

Answer 25

An inward shift of the curve

Question 26

What is a capital good?

Answer 26

Goats which can be used to produce other goods such as machinery

Question 27

What is a consumer good?

Answer 27

Goods which cannot be used to produce other goods such as clothing

Question 28

What is productive efficiency?

Answer 28

When resources are being used to their productive potential so efficient

Question 29

What is allocative efficiency?

Answer 29

When no one can be made better off without making someone else worse off

Question 30

How can I look at it efficiency weekend?

Answer 30

When there is improvements in welfare and more of both goods can be produced

Question 31

Does the PPF show allocative efficiency?

Answer 31

No as it doesn't show how goods are distributed in society