Chapter 1: Economic problem and opportunity cost

Question 1

Define scarcity

Answer 1

A situation that arises because people have unlimited wants in the face of limited resources

Question 2

Define economic goods

Answer 2

Goods that are scarce

Question 3

Define free goods

Answer 3

Goods such as the Earth’s atmosphere that are not normally regarded as being scarce

Question 4

Define poverty

Answer 4

A situation in which individuals lack the basic necessities of life or have low incomes relative t their fellow citizens

Question 5

Define firm (business)

Answer 5

An organisation that produces output (goods or services)

Question 6

Define positive statement

Answer 6

A statement about what is… ie facts

Question 7

Define normative statement

Answer 7

A statement involving a value judgement about what ought to be

Question 8

Define value judgement

Answer 8

A statement based on your opinion or beliefs, rather than on facts

Question 9

Define factors of production

Answer 9

Resources used in the production process, or inputs into production, including labour, capital, land and enterprise

Question 10

Define opportunity cost

Answer 10

In decision making, the value of the next best alternative forgone

Question 11

Define production possibility curve (PPC)

Answer 11

A curve showing the maximum combinations of goods or services that can be produced in a set period of time given available resources

Question 12

Define trade-off

Answer 12

A situation in which the choice of one alternative requires the sacrifice of another

Question 13

Define capital goods

Answer 13

Goods used as part of the production process, such as machinery or factory buildings

Question 14

Define consumer goods

Answer 14

Goods produced for present use (consumption)

Question 15

Define long-run economic growth

Answer 15

An expansion in the productive capacity of the economy