Chapter 1

Question 1

What’s a positive statement?

Answer 1

an objective statement that can be tested against facts to be declared either true or false

Question 2

What’s a normative statement?

Answer 2

a subjective opinion, or value judgement that cannot be declared either true or false

Question 3

What is a need?

Answer 3

Something which humans need to survive

Question 4

What is a want?

Answer 4

Something which people feel improves their standard of living but is not required for survival

Question 5

What is meant by the term economic welfare?

Answer 5

The standard of living or general wellbeing of people in society

Question 6

What is meant by factors of production and what are the four usually identified?

Answer 6

A country’s productive economics resources, divided into capital, enterprise, land and labour

Question 7

What is the basic economic problem?

Answer 7

Scarce economic resources compared with society’s unlimited wants

Question 8

What is an opportunity cost?

Answer 8

The cost of the next best alternative foregone when you have to make a choice

Question 9

What is an economic good?

Answer 9

A good that has an opportunity cost in consumption as it uses up scarce resources

Question 10

What is a free good?

Answer 10

A good that doesn’t have an opportunity cost in consumption because it does not use up scarce resources

Question 11

What is a production possibility curve?

Answer 11

A diagram which shows the maximum possible output combinations of two goods in an economy, assuming full employment of efficient resources

Question 12

What are four factors that lead to an outward shift of the PPC?

Answer 12

Technological improvements that lead to increased productivity of capital

Discovery of new resources

Improvements in education and training that lead to a more productive workforce

Changes that lead to an increase in working population e.g increases in immigration

Question 13

What are four factors causing an inward shift of the PPC?

Answer 13

Disasters such as earthquakes that destroy productive resources

Wars

Global warming

A prolonged recession, which may lead to a permanent loss of productive capacity if businesses close down and workers lose skills

Question 14

What is economic growth?

Answer 14

An increase in the productive capacity of an economy over time

Question 15

What is productive efficiency?

Answer 15

When maximum output is produced from the available factors of production. Also know as when it is not possible to produce one more of one good or service without producing less of another

Question 16

What is allocative efficiency?

Answer 16

When an economy’s factors of production are used to produce the combination of goods and services that maximises society’s welfare

Question 17

If point X is inside the frontier of a PPC, what can you say about producing at point X?

Answer 17

Any point that lies inside the PPC is productively inefficient

Question 18

What is a consumer good?

Answer 18

A good that gives satisfaction to consumers

Question 19

What is a capital good?

Answer 19

A good that is used in the production of another good e.g machinery and IT equipment

Question 20

What is the free market?

Answer 20

Decisions are made solely by the interactions of consumers and firms, with no government intervention

Question 21

What is a command economy?

Answer 21

Decisions are made solely by the planning department of the government