1.1 Economic methodology

Question 1

What are needs

Answer 1

those things required that are essential to maintain survival

Question 2

What are wants

Answer 2

those things that are desired but not essential to survive

Question 3

What is an economic agent?

Answer 3

the individuals and firms that partake in economic activity, the demand for and supply of goods and services

Question 4

what is economic welfare

Answer 4

the benefit gained by individuals, firms or society in the production of goods and services

Question 5

What is a free market economy?

Answer 5

where firms decide what goods and services to produce with limited intervention from the government

Question 6

What is the fundamental purpose of economic activity?

Answer 6

To satisfy need and wants

Question 7

What are the 4 factors of production

Answer 7

Land, labour, enterprise and capital

Question 8

What are factors of production?

Answer 8

the resources used by firms to produce goods and services

Question 9

what is labour

Answer 9

includes all of the workforce in an economy

Question 10

what is land?

Answer 10

all of the natural resources that come from the earth that are used in the production of goods and services

Question 11

What is capital

Answer 11

the man-made aids that are used in the production process

Question 12

what is enterprise?

Answer 12

the entrepreneur takes land, labour and capital and organises them in order to produce products that will be profitable

Question 13

what is the fundamental economic problem?

Answer 13

scarcity and that it results from limited resources and unlimited wants

Question 14

What is opportunity cost?

Answer 14

the benefit lost of the next best alternative when making a choice

Question 15

What are trade-offs?

Answer 15

the range of alternatives we give up

Question 16

what do Production Possibility diagrams illustrate?

Answer 16

the different features of the fundamental economic problem such as: resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth

Question 17

What does a Production Possibility Curve show?

Answer 17

used to show the different combinations of output for two products

Question 18

What do we know if point A is on the PPC

Answer 18

We are using a full use of resources

Question 19

What does a point under the PPC show?

Answer 19

An unemployment of resources

Question 20

When does a trade-off occur?

Answer 20

when an economic agent substitutes the production of one good or service for another.

Question 21

What are investment goods?

Answer 21

those that produce a stream of income in the future

Question 22

What are consumption goods

Answer 22

those that produce a stream of income today

Question 23

What does a shift of the PPC to the right mean?

Answer 23

An increase in the productive capacity of the economy(greater output can be produced)

Question 24

What causes economic growth(a shift of a PPC to the right)

Answer 24

Any increase in factor inputs(land, labour, capital and enterprise)

Question 25

What is productive efficiency?

Answer 25

Using resources efficiently so it can be anywhere on the PPC curve

Question 26

What is Allocative efficiency?

Answer 26

Occurs when social welfare is maximised. Can only be 1 point on the PPC

Question 27

What causes a shift to the let on a PPC?

Answer 27

Decrease in productivity, loss of investment, high unemployment, natural disasters, increase scarcity of resources

Question 28

What are positive statements?

Answer 28

objective statements that can be tested, amended or rejected by referring to the available evidence

Question 29

What are normative statements?

Answer 29

Subjective statements