1.1 Nature of Economics (1.1.1 - 1.1.3)

Question 1

What kind of science is Economics?

Answer 1

A social science

Question 2

What is a social science?

Answer 2

the scientific study of societies and social interaction

Question 3

What is Economics?

Answer 3

A social science that deals with the production, consumption and distribution of goods and services

Question 4

How is Economics similar to the Natural Sciences?

Answer 4

It uses the same methods of:
- conducting research
- collecting data
- using maths to create models and theories

Question 5

How is Economics different to the natural sciences?

Answer 5

It is very difficult to test the economic models in economics, as there are so many factors that can change

Question 6

Why do Economists build models?

Answer 6

to understand behaviour and to explain real world evidence

Question 7

What does Ceteris Paribus mean?

Answer 7

It is Latin for ‘all other things held constant’

Question 8

When is the Ceteris Paribus assumption used by Economists?

Answer 8

When they are building their theories and models

Question 9

Why do economists build models based on a set of assumptions?

Answer 9

• as controlled laboratory tests are not possible
• in real life economists can’t keep variables constant

Question 10

What is a positive statement?

Answer 10

An objective statement that can be tested using real world data to see if it is true or false

Question 11

What is a normative statement?

Answer 11

it involves a value judgement and cannot be proven or tested

Question 12

What kind of words does a normative statement tend to include?

Answer 12

‘should’ and ‘ought’

Question 13

What is a value judgement?

Answer 13

statements expressed that depend on the views of the individual and the values they hold

Question 14

What is the basic Economic problem?

Answer 14

That there are not enough resources to satisfy the unlimited wants of humans

Question 15

What are wants?

Answer 15

things people can live without but desire (e.g. smartphones)

Question 16

What are needs?

Answer 16

things people can’t live without

Question 17

What do Economists sometimes refer to the ‘Economic Problem’ as?

Answer 17

The problem of Scarcity

Question 18

Why do choices have to be made on how to use resources?

Answer 18

Because resources are scarce

Question 19

What is opportunity cost defined as?

Answer 19

the next best alternative forgone

Question 20

Explain opportunity cost

Answer 20

The cost of one item can be seen as the lost opportunity to consume something else

Question 21

What can Opportunity cost sometimes be referred to as?

Answer 21

A price

Question 22

Why is opportunity cost useful?

Answer 22

• It is useful when thinking about how to allocate resources
• consumers can use it to decide how to spend their earnings

Question 23

What are 2 issues with opportunity cost?

Answer 23

• Not all factors have alternatives
• Some alternatives are unknown

Question 24

What are the four factors of production? (CELL)

Answer 24

• Capital
• Enterprise
• Land
• Labour

Question 25

What is Capital?

Answer 25

The technology and machinery we use to make goods

Question 26

What is Enterprise/Entrepreneurship?

Answer 26

the willingness and ability to take the risks of combining the other three factors of production in order to make a product or service

Question 27

What is Land?

Answer 27

All the earth’s natural resources, i.e. land, but also raw materials

Question 28

What is Labour?

Answer 28

human workers that are used to produce a good

Question 29

Why is money not a factor of production?

Answer 29

As money cannot be used to produce anything, it can be used to buy factors of production, but money itself can’t be used to make things

Question 30

What is an Economy?

Answer 30

Any system that tries to solve the economic problem or the problem of scarcity

Question 31

What are the two types of resources?

Answer 31

renewable and non-renewable resources

Question 32

What is a renewable resource?

Answer 32

Resources that are being replenished as they are being used

Question 33

What are non-renewable resources?

Answer 33

Resources that will not replenish after use

Question 34

When may renewable resources become finite?

Answer 34

if the rate we consume the resource is quicker than the natural rate of production, the resource will become depleted and we will have a finite supply (rate of extraction - tree example)