Economic Methodologies Ch#2

Question 1

Define standard of living

Answer 1

SOL refers to the level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class or geographic area.

Question 2

Define economics

Answer 2

It is the study of how to allocate scarce resources in the most efficient way possible

Question 3

Define Microeconomics

Answer 3

Microeconomics studies the decisions of individuals and firms to allocate resources of production, exchange and consumption
OR
The study of individual markets(household and firms)

Question 4

Define Macroeconomics

Answer 4

Macroeconomics deals with the structure,performance,behaviour and decision-making of a whole,or aggregate economy.

Question 5

What does model in economics mean?

Answer 5

An economic model is a simplified description of reality, designed to yield hypotheses about economic behaviour that can be tested.

Question 6

Define Positive statements

Answer 6

• Based on facts or actual evidence
• No value judgements are made
• Based on objective statements
• Can be tested in real life

Question 7

Define Normative statements

Answer 7

• Based on opinions or judgement
• Based on value judgments
• Subjective statements are made

Question 8

Meaning of ceteris paribus?

Answer 8

All other things remain equal or unchanged

Question 9

What is the benefit of ceteris paribus?

Answer 9

It can be used to simplify a situation by only taking into account one factor and keeping the other factors constant.

Question 10

What does short-run in economics mean?

Answer 10

Short run is a time period when a firm can change one but not all the factors of production.

Question 11

What does long-run in economics mean?

Answer 11

Long run means when a firm can change all the factors of production but with a constant such as the state of technology.

Question 12

What does very long-run in economics mean?

Answer 12

Time period when all key inputs such as FOP’s and state of technology etc are variable or can change.