4.1.1. - Economic Methlodology And The Basic Economic Problem

Question 1

Why is economics a social science

Answer 1

It studies human society and social relationships which cannot be controlled

Question 2

How does economics being a social science explain the methodology for its investigations

Answer 2

-Models are used rather than lab experiments
-people are very unpredictable which puts limitations on the ability to investigate them in a controlled lab environment

Question 3

What are models

Answer 3

Data that is based on simplified assumptions, usually presented as a diagram

Question 4

Define value judgement

Answer 4

A assessment of something as good or bad based on ones own standards or priorities

Question 5

How to value judgements influence economic decision making

Answer 5

When deciding what the best option is, peoples views may be influenced by:
- the positive consequences of different decisions
- their moral and political judgements

Question 6

What is the central purpose of economic activity

Answer 6

To produce goods and services to satisfy the needs and wants of the economy

Question 7

What are the three questions of the economic problem

Answer 7

What to produce? (What finite resources will limit choices)
How to produce it? (Labour or machines)
For who shall it be produced for? (Who will products be sold to, what price will be charges, workers pay )

Question 8

What are the 4 factors of production?

Answer 8

Land, labour, capital, enterprise

Question 9

Define land

Answer 9

The stock of raw materials; including non renewable resources, renewable resources, non sustainable resources and sustainable resources

Question 10

Define labour

Answer 10

The workforce of an economy, each worker has a unique set of characteristics. Their value to the economy is called their HUMAN CAITAL

Question 11

How can human capital be enhanced

Answer 11

Education and training

Question 12

Define capital

Answer 12

The manufactured stock of resources that are used during the production of goods and services;
WORKING CAPITAL: goods that become the final product that is sold to the consumer
FIXZED CAPITAL: stock of materials that don’t turn into the final product but are used to transform working capital to the final product,

Question 13

Define enterprise

Answer 13

The use of land labour and capital to produce a profitable good or service

Question 14

Define scarcity

Answer 14

Created due to the finite resources and the infinite wants,

Question 15

Why does scarcity result in choices having to be made

Answer 15

The scarce resources must be allocated between its different uses, therefore a choice as to be made between where the scarce resource is used

Question 16

What does a PPF show

Answer 16

The maximum amount of any two goods or services that we can produce based on the available resources.
it demonstrates the different combinations of the goods that can be produced

Question 17

How do PPF’s demonstrate scarcity

Answer 17

There is a maximum limit of production, there would be no PPF if infinite resources could be used

Question 18

How do PPF’s demonstrate choice

Answer 18

The points on the PPF illustrate the possible combinations of production that can be carried out

Question 19

How do PPF’s demonstrate opportunity cost

Answer 19

The gradient shows opportunity cost, a steeper gradient means opportunity cost is greater.

Question 20

How is productive efficiency illustrated on a PPF

Answer 20

Productive efficiency is the maximum output that can be made will current resources
All points along the PPF are calculated using the most productively efficient figures

Question 21

How is allocative efficiency illustrated on a PPF

Answer 21

Allocative efficiency is when there is a maximum social welfare.
The point on the PPF that illustrates the utility maximising combination is demonstrating allocative efficiency

Question 22

What factors will cause a PPF to shift in

Answer 22

Events that will effect the total number of goods that can be produced:
- war
- natural disaster
- pandemic
- prolonged recession ( hysteresis [deskilling] )
- emigration
- climate change

Question 23

Factors that will cause a shift out of the PPF

Answer 23

Anything that will increase the rate of goods that can be produced
- immigration
- goof weather
- education/ training
- technological advancements
- discovery of new resources

Question 24

When would a PPF be linear

Answer 24

Is the opportunity cost is constant

Question 25

Why is the PPF usually concave to the origin

Answer 25

When switching resources from producing good A to good B, the initial increase in output from allocating more resources to good B will diminish.

This is because when switching resources, the best labour moves first so output will be at its highest.

Question 26

Why is it impossible to have a point outside of the PPF

Answer 26

The ppf shows the most efficient combinations using all of the resources, therefore it isn’t achievable to produce more goods.

Question 27

What do points inside the PPF show

Answer 27

They show productively inefficient production of goods and services, meaning that resources are being wasted.

Question 28

What is prolonged recession

Answer 28

Long lasting downturn in economic activity, causing hysteresis (deskilling)