Chapter 1 - Nature & Scope

Question 1

What does ceteris paribus mean?

Answer 1

It means all other things being unchanged or constant.

Question 2

What is a positive statement?

Answer 2

It is a statement of fact which may be right or wrong, but its accuracy can be tested by appealing to facts.

Question 3

What is a normative statement?

Answer 3

It is statement that expresses value judgements about economic issues. They can be subjective and hence impossible to verify or test.

Question 4

What is microeconomics?

Answer 4

Microeconomics is the branch of economics that is concerned with the individual parts of the economy.

Question 5

What is macroeconomics?

Answer 5

Macroeconomics can be defined as the study of the economy as a whole.

Question 6

When does scarcity occur?

Answer 6

Scarcity occurs when there is an excess of human wants over what can actually can be produced to fulfil this wants.

Question 7

What are the 4 economic resources?

Answer 7

Land, labour, capital and entrepreneurship.

Question 8

Define opportunity cost (implicit cost).

Answer 8

Opportunity cost refers to the value of the next-best alternative forgone.

Question 9

What are the 4 basic economic decisions?

Answer 9

What to produce, How much to produce, How to produce, For whom to produce

Question 10

Define the production possibility curve (PPC).

Answer 10

The PPC shows the maximum possible combinations of 2 goods a country can produce given a constant state of technology and that its limited resources are fully employed.

Question 11

What do points on the PPC show?

Answer 11

Points on the PPC are attainable output combinations and show efficient resource utilisation.

Question 12

What do points inside the PPC show?

Answer 12

Points inside the PPC are attainable but inefficient output combinations as the economy does not make use of available resources and there is wastage of idle resources/

Question 13

What are the points outside of the PPC?

Answer 13

Points outside the PPC are desired but unattainable output combinations because of scarcity of resources.

Question 14

How is scarcity illustrated in the PPC?

Answer 14

Scarcity is illustrated by the downward / negative slope of the PPC, as well as the unattainable points outside the PPC.

Question 15

How is choice illustrated in the PPC?

Answer 15

Choice is illustrated by the points inside and on the PPC.

Question 16

How is opportunity cost illustrated in the PPC?

Answer 16

Opportunity cost is illustrated by the negative slope of PPC. Increasing opp cost is illustrated by the concave shape of PPC, due to resources being imperfect substitutes for each other.

Question 17

What do resources that are imperfect substitutes refer to?

Answer 17

Resources that are not equally good or efficient in the production of both goods.