Economic Methodology And Problem

Question 1

What are positive economic statements?

Answer 1

Positive economic statements are objective statements that can be tested against facts to be declared either true or false

Question 2

What are normative economic statements?

Answer 2

Normative economic statements are subjective opinions or value
judgements that cannot be tested against facts.
These often concern views about
about what individuals, firms or governments should do, based on people’s ethical, moral or political standpoint.

Question 3

What is a need?

Answer 3

A need is something that humans require for survival e.g food, shelter, warmth

Question 4

What is a want?

Answer 4

A want is something that people desire which may improve their standard of living or economic welfare. It is not require for survival

Question 5

What is economic welfare?

Answer 5

Economic welfare is the standard of living of the general well-being of people in society.
This is achieved by satisfying society’s wants and needs, and when achieved can increase real GDP per capita.

Question 6

What are the four factors of production?

Answer 6

(CELL)
Capital
Enterprise
Land
Labour

Question 7

What is capital?

Answer 7

Capital refers to man-made physical equipment used for the production of other goods and services
E.g machinery, buildings and tools

Question 8

What is enterprise?

Answer 8

This is the entrepreneur who takes a business risk by combining the other 3 factors of production to produce a good or service

Question 9

What is land?

Answer 9

All the naturally occurring resources such as minerals, fossil fuels, fertile land and the environment. These can be either renewable or non renewable resources.

Question 10

What is labour?

Answer 10

People involved in the production process of a good or service, often referred to as human capital

Question 11

What are the 3 fundamental economic problems

Answer 11

1) What to produce?
2) How to produce?
3) Whom to produce to?

Question 12

What is the basic economic problem?

Answer 12

Scarcity.
This refers to the problem of limited economic resources relative to society’s unlimited wants.

Question 13

What is the free market?

Answer 13

Decisions are made solely by the interaction of consumers and firms, free from government intervention

Question 14

What is the command/centrally planned economy?

Answer 14

Decisions are made solely by the planning department of the governments

Question 15

What is opportunity cost?

Answer 15

The next best alternative that you give up when you make a choice.

Question 16

What is a production possibility curve/ frontiers (PPC/PPF)?

Answer 16

A diagram that shows the maximum possible output combinations of two goods in an economy, assuming full and efficient employment of resources.

Question 17

What does the point ON the PPF show?

Answer 17

Productive efficiency.
All factors of production are fully employed.

Question 18

What does the point BELOW the PPF show?

Answer 18

Productive inefficiency.
Factors of production are not being employed to its maximum capacity

Question 19

What does the point ABOVE the PPF show?

Answer 19

This is non-existent and unrealistic.
The economy can not produce beyond it’s available resources

Question 20

What are the shifts of the PPF driven by?

Answer 20

Changes in the quality and quantity of the factors of production

Question 21

4 factors causing an outward shift of the PPF

Answer 21

• Technological improvements that lead to increased productivity/efficiency
• Discovery of new resources e.g oil and gas
• Improvements in education and training that lead to a more productive workforce
• Changes that lead to an increase in working population e.g increases in immigration or raised retirement age

Question 22

What are 4 factors causing an inward shift of the PPF

Answer 22

• Disasters such as earthquakes or floods that may damage productive resources
• Wars
• Global warming/climate change which may lead to loss of farmland, rising sea levels and more extreme weather
• A prolonged recession, which may lead to permanent loss of productive capacity if businesses close and/ or workers lose skills

Question 23

What are the two types of efficiency?

Answer 23

Productive efficiency:
- When maximum output is produced from the available factors of production and it is not possible to produce one more without producing less of another

Allocative efficiency:
- When an economy’s factors of production are used to produce the combinations of goods and services that maximise society’s welfare

Question 24

What are the two types of efficiency?

Answer 24

Productive efficiency:
- When maximum output is produced from the available factors of production and it is not possible to produce one more without producing less of another

Allocative efficiency:
- When an economy’s factors of production are used to produce the combinations of goods and services that maximise society’s welfare