4.1.1 Economic Methodology and the economic problem

Question 1

Positive Statement

Answer 1

a statement of fact that can be scientifically tested to see if it is correct or incorrect

Question 2

Normative Statement

Answer 2

a statement that includes a value judgement and cannot be refuted just by looking at the evidence

Question 3

Need

Answer 3

something that is necessary for human survival, such as food, clothing, warmth or shelter

Question 4

Want

Answer 4

something that is desirable such as fashionable clothing, but is not necessary for human survival

Question 5

Economic Welfare

Answer 5

the economic well-being of an individual, a group within society, or an economy

Question 6

Production

Answer 6

a process, or set of processes, that converts inputs into outputs of goods

Question 7

Capital Good

Answer 7

a good which is used in the production of other goods or services. Also known as a producer good

Question 8

Consumer Good

Answer 8

a good which is consumed by individuals or households to satisfy their needs or wants

Question 9

Factors of Production

Answer 9

inputs into the production process, such as land, labour, capital and enterprise

Question 10

Finite Resource

Answer 10

a resource, such as oil, which is scarce and runs out as it is used. Also known as a non-renewable resource

Question 11

Renewable Resource

Answer 11

a resource, such as timber, that with careful management can be renewed as it is used

Question 12

Fundamental Economic Problem

Answer 12

how best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare

Question 13

Key economic decisions

Answer 13

What to produce, how to produce and who is to benefit from the goods and services produced

Question 14

Scarcity

Answer 14

results from the fact that people have unlimited wants but resources to meet these wants are limited. In essence, people would like to consume more goods and services than the economy is able to produce with its limited resources

Question 15

Opportunity Cost

Answer 15

the cost of giving up the next best alternative

Question 16

Production Possibility Frontier (PPF)

Answer 16

shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed

Question 17

Economic growth

Answer 17

the increase in the potential level of real output the economy can produce over a period of time

Question 18

Full Employment

Answer 18

when all who are able and willing to work are employed

Question 19

Unemployment

Answer 19

when not all those who are able and willing to work are employed

Question 20

Choice

Answer 20

choosing between alternatives when making a decision on how to use scarce resources

Question 21

Resource Allocation

Answer 21

the process through which the available factors of production are assigned to produce different goods and services

Question 22

allocative efficiency

Answer 22

occurs when the available economic resources are used to produce the combination of goods and services that best matches people’s tastes and preferences

Question 23

consumer sovereignty

Answer 23

through exercising their spending power, consumers collectively determine what is produced in a market.

Question 24

economic problem

Answer 24

limited resources, unlimited wants.

Question 25

labour productivity

Answer 25

output per worker.

Question 26

producer sovereignty

Answer 26

producers or firms in a market determine what is produced and what prices are charged.

Question 27

productive efficiency for the economy

Answer 27

Occurs when it’s possible to produce more of one good without producing less of the other

Question 28

productivity

Answer 28

output per unit of input.

Question 29

outward shifts of the ppf

Answer 29

• technological advancements
• discovery of new resources
• increased education and training
• increase size of the labour force

Question 30

inward shifts of the ppf

Answer 30

• natural disasters
• wars
• global warming
• climate change
• prolonged recession

Question 31

Why is economics a social science?

Answer 31

It looks at the behaviour of humans, either as individuals or part of an organisation and their use of scarce resources.

Question 32

Axis labels PPF

Answer 32

Capital goods

Consumer goods

Question 33

Land

Answer 33

all natural resources used to produce goods and services

Question 34

Labour

Answer 34

Is human input into the production process

Question 35

Capital

Answer 35

Investment in goods that are used to produce other goods in the future includes machinery etc

Question 36

Entrepreneurship/ Enterprise

Answer 36

An individual who seeks to supply products to a market for a profit

Question 37

What’s the reward of land ?

Answer 37

Rent

Question 38

What’s the reward of labour ?

Answer 38

Wages

Question 39

What’s the reward of capital ?

Answer 39

Interest

Question 40

What’s the reward of enterprise ?

Answer 40

Profit

Question 41

Long-run economic growth on a ppf

Answer 41

Is shown by the outward movement of the frontier on a PPF curve

Question 42

Short-run economic growth

Answer 42

When there is movement from a position of productive inefficiency inside the curve to a point of productive efficiency on the curve

Question 43

What does any point under the PPF curve represent ?

Answer 43

Under employment of economic resources including labour

Question 44

Law of diminishing returns

Answer 44

A point when the level of profits or benefits gained is less than the amount of money or energy invested

Question 45

When does productive efficiency occur for a firm ?

Answer 45

When the average total cost of production is minimised