Chapter 1 : Economic methodology and the economic problem

Question 1

What is a hypothesis ?

Answer 1

An explanation of something.

Question 2

What is a theory ?

Answer 2

A hypothesis that has been tested and survives the test.

Question 3

What is a normative statement ?

Answer 3

A normative statement is a form of a value judgment that cannot be scientifically tested.

Question 4

What is a positive statement ?

Answer 4

A statement that can be scientifically tested.

Question 5

What is a value judgement ?

Answer 5

A value judgement is whether we believe if something is desirable or not.

Question 6

What is an example of when value judgements are made ?

Answer 6

When government ministers make decisions on policy objectives.

Question 7

What is a need ?

Answer 7

A need is something that is absolutely necessary for survival. An example is food.

Question 8

What is a want ?

Answer 8

A want is something that you would like to have but isn’t necessary. It’s not need to survive. An example is a book.

Question 9

What is economic welfare ?

Answer 9

Economic welfare is the economic well-being of an individual, a group within society or an economy.

Question 10

What is a command (planned) economy ?

Answer 10

An economy in which government officials or planners allocate economic resources to other firms or productive enterprises.

Question 11

What is a market economy ?

Answer 11

An economy is an economy in which goods and services are purchased through the price mechanism in a system of markets.

Question 12

What is a mixed economy ?

Answer 12

A mixed economy is an economy in which planning mechanisms operate in both a large market sector and a large non-market sector.

Question 13

What is production ?

Answer 13

Production is the process of converting inputs or factors of production into outputs of goods and services.

Question 14

What is a capital good ?

Answer 14

A capital food is a good which is used in the production of other goods and services.
Ex. machinery

Question 15

What is a consumer good ?

Answer 15

A consumer good is a good which is consumed by an individual or household to satisfy their needs or wants.

Question 16

What are the factors of production ?

Answer 16

The factors of production are inputs into the production process such as land, labour, capital and enterprise.

Question 17

Explain the factor of production ‘Land’

Answer 17

Land is natural resources that can be divided into renewable and non-renewable resources.

Question 18

Explain the factor of production ‘Capital’

Answer 18

Capital is man-made physical equipment used to make other goods or services.

Question 19

Explain the factor of production ‘Labour’

Answer 19

Labour is people involved in the production process, such as workers.

Question 20

Explain the factor of production ‘Enterprise’

Answer 20

Enterprise is entrepreneurs who decide how much of factors of production to employ to a good or service. They decide what, how and who to produce for.

Question 21

What is a renewable resource ?

Answer 21

A renewable resource is a resource that are reproducible but depend on the management of humans.
Ex. Forests, Animals, Water

Question 22

What is a non-renewable resource ?

Answer 22

A non-renewable resource is a resource they cannot be renewed, they are scarce and run out after use.
Ex. Oil, gas, minerals

Question 23

What are some scarce environmental resources ?

Answer 23

• Gases (hydrogen and oxygen)
• Physical resources (soil and water)
• Abstract resources (solar and wind energy)

Question 24

What is the fundamental economic problem ?

Answer 24

The fundamental economic problem is the best way to make decision about the allocation of scarce resources to maximise economic welfare.

Question 25

What is scarcity ?

Answer 25

Scarcity results from the fact that individuals have unlimited wants but the economy has limited resources to meet them.

Question 26

What is a choice ?

Answer 26

A choice means choosing between alternatives when making decisions on how to use scarce resources.

Question 27

What is a opportunity cost ?

Answer 27

An opportunity cost is the cost of giving up the next best alternative.
Ex. If an A-alevel student spends their evening playing computer games the opportunity cost is the lost opportunity to spend this time revising for their A-Levels