Economic methodology

Question 1

The basic economic problem

Answer 1

How to allocate scarce resources to satisfy unlimited wants

Question 2

Choices to make as a society

Answer 2

1. What to produce
2. How to produce
3. Whom to produce goods and services for

Question 3

4 Factors of production

Answer 3

Capital, land, labour and enterprise

Question 4

Capital

Answer 4

Man made machinery/technology to produce goods and services

Question 5

Land

Answer 5

Physical/natural resources

Question 6

Labour

Answer 6

Human workforce to aid the production of making a good or service

Question 7

Enterprise/ Entreupenship

Answer 7

Brings people together to produce output, spot gaps in the market and risk taking.

Question 8

Capital is based on?

Answer 8

Loans

Question 9

Land is based on?

Answer 9

Rent

Question 10

Enterprise is based on?

Answer 10

Profit

Question 11

Labour is based on?

Answer 11

Wages

Question 12

Ideal economic goal

Answer 12

Increase economic welfare =

peoples /happiness/utility/satisfaction

Question 13

Production possibility curve

Answer 13

A curve which shows the maximum output combination of two goods and services that an economy can produce with all available resources fully employed.

Question 14

3 things a PPC illustrates

Answer 14

1. Opportunity cost
2. Maximum output combination of two goods and services 3.Maximum productivity capacity of an economy assuming quality and quantity of resources and technology do not change over period of time.

Question 15

Point inside PPC

Answer 15

Underproduction/unemployment. Economy is productively inefficient and producing below capacity so not maximising full use of scarce resources.

Question 16

Point outside PPC

Answer 16

Impossible. Restricted by the curve, do not have that level of scarce resources.

Question 17

Point on PPC

Answer 17

Productively efficient, maximising full use of scarce resources.

Question 18

Oppurtunity cost

Answer 18

The next best alternative foregone when making an economic decision.

Question 19

2 shifters of a PPC

Answer 19

1. Quantity of quality of resources (increased immigration= more labour)
2. Change or improvement in technology (better machinery= produce more output)

Question 20

Straight line PPC

Answer 20

Opportunity cost is constant

Question 21

Concave PPC (curve)

Answer 21

Opportunity cost increases

Question 22

Convex PPC (parabola)

Answer 22

Opportunity cost decreases

Question 23

3 main economic systems and example of countries

Answer 23

1. Planned or command or communist (North Korea)
2. Capitalist or free market (USA)
3. Mixed (China or USA)

Question 24

Planned economy

Answer 24

State ownership/ control of factors of production/ monopoly government

Question 25

Capitalist

Answer 25

Everyone works in their own self interest/ minimal government interference/ consumer control demand

Question 26

Mixed

Answer 26

Partly state controlled and partly consumer controlled.

Question 27

Adam smith

Answer 27

Invisible hand theory in 19th century, markets worked best when buyers and sellers traded among themselves “lassie fair’e” . Let the market run naturally

Question 28

Market

Answer 28

Buyers and sellers interact among themselves and exchange goods and services

Question 29

Rising prices in the market

Answer 29

Demand exceeds supply, a shortage exists

Question 30

Falling prices in the market

Answer 30

Supply exceeds demand, a surplus exists