1.1.1 - Economic Methodology and the Economic Problem

Question 1

what does economics study?

Answer 1

the choices people take under conditions of scarcity and uncertainty

Question 2

what is microeconomics the study of?

Answer 2

Economics at the individual, industry or household level.

Question 3

what is positive statement?

Answer 3

A statement that can be tested, proved and/or amended due to evidence.

Question 4

what is a normative statement?

Answer 4

a subjective statement

Question 5

what are 3 assumption microeconomists make?

Answer 5

1. Rational consumers want to maximize satisfaction from the products they purchase.
2. Producers/Companies wish to maximize profits by producing goods at the lowest cost.
3. Government operates in the best interests of it’s
   citizens by improving the economic and social welfare of the aforementioned.

Question 6

what is opportunity cost?

Answer 6

It measures the cost of a choice compared to the next best option.

i.e. If you go out for food, the opportunity cost is that you didn’t put that money into savings.

On a more macro scale, if you use land for agriculture and farming, you can’t then also use that land for education or healthcare.

Question 7

what are the factors of production?

Answer 7

land
labour
capital
enterprise

Question 8

what does land mean?

Answer 8

the scare physical natural resource available for production

Question 9

what is enterprise?

Answer 9

The people who own the companies that manufacture the goods.

Question 10

what is labour?

Answer 10

the human input to create goods

Question 11

what is capital?

Answer 11

The goods used in the supply of other products.
i.e. technology, machinery etc.