1.1 Economic methodology and the economic problem

Question 1

Why is economics a social science

Answer 1

because you look at the behaviours of individuals or groups and predict their behaviour in certain scenarios

Question 2

economic methodology

Answer 2

scarce resources are allocated to competing users in society, in order to satisfy their wants/needs

Question 3

scarce resource

Answer 3

the resource is limited, so cannot be given to everybody.

Question 4

positive economic statement

Answer 4

statements that can be proven to be true or false using facts

Question 5

normative economic statements

Answer 5

subjective opinions which cannot be proven (value judgement) e.g what caused inflation

Question 6

what is a value judgement

Answer 6

where different economists can make different judgements from the same statistic. e.g the rate of inflation

Question 7

need

Answer 7

something u need to survive

Question 8

want

Answer 8

improves standard of living or economic welfare (general wellbeing of society)

Question 9

what are the factors of production

Answer 9

land
labour
capital
enterprise

Question 10

capital

Answer 10

man made equipment to make other goods or services e.g a factory

Question 11

enterprise

Answer 11

using all other 3 factors of production to produce a good or service

Question 12

land

Answer 12

naturally occurring resource

Question 13

labour

Answer 13

people involved in production

Question 14

the basic economic problem

Answer 14

scarcity suggests that we have limited resources in our economy, but society wants unlimited resources therefore we need to decide on how to allocate these resources

Question 15

opportunity cost

Answer 15

cost of the next best alternative foregone (given up)

Question 16

economic good

Answer 16

a good that has an opportunity cost when consumed because it uses scarce resources e.g. buying a car that metal could have been used for something else.

Question 17

free good

Answer 17

A good has no opportunity cost as it doesn’t use scarce resources. e.g. sunlight or air

Question 18

what is the production possibility curve

Answer 18

a diagram which shows the maximum combinations of 2 goods which can be made in an economy. Assuming all factors are fully employed and used efficiently (enterprise land labour capital) it assumes the most that can be made.

Question 19

what does the PPF assume?

Answer 19

it assumes that better use of the factors of production moves the points closer to the edge. (where factors are fully employed and efficient) however does not shift the curve out, only economic growth causes the PPF to shift out.

Question 20

Draw a PPF diagram

Answer 20

Question 21

How the PPF moves outwards

Answer 21

improvements of technology - more efficiently and produce more
Discovering new resources - oil and gas
better education/training - faster task completion etc
bigger working population - more workers etc

Question 22

what does it mean to say PPF moves inwards ?

Answer 22

It means that the productive capacity decreases due to a less optimised production capability.

Question 23

How the PPF moves inwards

Answer 23

Natural disasters - destroys resources
War - “
Global warming - rising sea levels + extreme weather
Long recession - businesses close, workers lose skills = less productive capacity.

Question 24

How the PPF shows opportunity cost

Answer 24

producing the amount at point A1 means you can only produce the amount of B1. point A

if you reduce the amount made of A so A2 then it increases the amount of capital goods that can be made B2.

the opportunity cost is by making more of B (b2) you lose out on A1 - A2

Question 25

allocative efficiency

Answer 25

all factors of production are used to maximise societies welfare.

Question 26

productive efficiency

Answer 26

when maximum output is made from available factors of production and you cant make more of a good without making less of another, meaning you can move along the ppf line (more or less consumer/capital goods)