Chapter 2: Methodology

Question 0

Circular flow diagram

- flow of goods and services

Answer 0

Households own and sell factors of production (labour,land capital)
Markets for production supply inputs for production to firms
Firms produce and sell goods and services
Goods and services sold to market for goods and services
Goods and services bought and consumed by households

Question 1

The method of inquiry

Answer 1

• Devise theories
• Collect data
• Analyse
• Verification/rejection

Question 2

Circular flow diagram

- flow of dollars

Answer 2

Firms hire and use factors of production- wages, rent, profits
Markets for production pays households an income for goods and services
Households buy and consume- spending on goods and services
The market for goods and services generates revenue that is paid to the firm

Question 3

Market for goods and services

Answer 3

Households = buyers
Firms= sellers

Question 4

Market for factors of production

Answer 4

Households =sellers

Firms = buyers

Question 5

Production possibilities frontier (PPF)

Answer 5

• graph depicting all the combinations of output

- dependant on available factors of production and available production technology firms use to create outputs