Economic methodology and the economic problem

Question 1

What is meant by a hypothesis in economics

Answer 1

A proposed explanation for something

Question 2

What is meant by a theory in economics

Answer 2

When a hypothesis is tested and survives the test it becomes a theory

Question 3

What is a positive statement

Answer 3

If can be scientifically tested to see whether it is incorrect. However a positive statement doesn’t have to be true

Question 4

What is a Normative statement

Answer 4

it is about value judgements and opinions that cannot be scientifically tested. It includes words such as “ought” , “should” .

Question 5

What is a value judgement

Answer 5

it is an opinion which cannot be proved

Question 6

What is the purpose of economic activity

Answer 6

the central purpose is the production of goods and services to satisfy needs and wants.

Question 7

What is economic welfare

Answer 7

it is the economic wellbeing of an individual, a group within society or an economy.

Question 8

What are consumer goods and capital goods

Answer 8

Consumer goods are goods such as food which gives consumers satisfaction

Capital goods is a good such as machine used to produce other goods

Question 9

What is the difference between a a need and a want

Answer 9

A need is something that is necessary for human survival such as food

A want is something that is desirable, such as icecream but is not necessary for human survival

Question 10

What is economics ( the study of economising)

Answer 10

the study of how people make choices about what to produce, how to produce and for whom to produce, in a world in which most resources are limited or scarce

Question 11

Explain the factors of production and name the 4

Answer 11

it is the inputs into the production process including land labour capital and enterprise

Question 12

What is the role of an entrepreneur in the factors of production

Answer 12

an entrepreneur decides how much of the factors of production including labour to employ

Question 13

What is the difference between profit and entrepreneurial profit

Answer 13

profit is the entrepreneurs financial reward

entrepreneurial profit is the profit left over after the cost of employing the other factors of production is deducted from the sales revenue

Question 14

What is the economic problem

Answer 14

that there is only a limited amount of resources available to produce the unlimited quantity of goods and services people desire

Question 15

What is opportunity cost

Answer 15

the cost of giving up the next best alternative

Question 16

What is a production possibility diagram (PPF)

Answer 16

it illustrates the different combinations of two goods, or two sets of goods that can be produced with a fixed quantity of resource providing we assume that all available resources are being utilised to the full.

Question 17

What can we conclude about the ppf diagram

Answer 17

All points on an economy’s production possibility diagram are productively efficient because they show the maximum possible levels of output that available inputs can produce. However they are unlikely to be allocative efficient

Question 18

What’s the difference if the ppf illustrate short run economic growth and long run economic growth

Answer 18

short run economic growth is illustrated by a movement from a point inside the curve

long run economic growth is illustrated by an outward shift of the curve to a further out position