Economic methodology and the economic problem

Question 1

What is a normative statement?

Answer 1

Normative statement is a statement that includes a value judgement and cannot be refused just by looking at the evidence

Question 2

What is a need?

Answer 2

Something that is necessary for human survival, such as food, warmth, clothing or shelter ( is the opposite to a want )

Question 3

What is a need?

Answer 3

Something which we desire but is not necessary for human survival ( is the opposite to a need )

Question 4

What is a capital good?

Answer 4

A good which is used in the production of other goods or services.

Question 5

Consumer good?

Answer 5

A good which is consumed by individuals or am households to satisfy their needs or wants

Question 6

Factors of production

Answer 6

Inputs into the production process, such as land, labour, capital and enterprise

Question 7

Finite resource

Answer 7

A resource, such as oil, which is scarce and runs out as it is used. Also known as a non-renewable resource

Question 8

Renewable resource

Answer 8

A resource, such as timber, that with careful management can be renewed as it is used

Question 9

Fundamental economic problem

Answer 9

How best to make decisions about the allocation of scarcer resource among competing uses so as to improve and maximise human happiness and welfare

Question 10

Scarcity

Answer 10

Results from the fact that people have unlimited wants but resources to meet these wants are limited. In essence, people would like to consume more goods and services than the economy is able to produce with its limited resources

Question 11

Opportunity cost

Answer 11

The cost of giving up the next best alternative

Question 12

Production possibility frontier (PPF)

Answer 12

A graph to show what can be produced when all FOP’s are maximised

Question 13

Economic growth

Answer 13

The increase in the potential level of real output the economy can produce over a period of time

Question 14

Full employment

Answer 14

When all who are able and willing to work are employed

Question 15

Unemployment

Answer 15

When not all of those who are able and willing to work are employed

Question 16

Resource allocation

Answer 16

The process through which the available FOP’S are assigned to produce different goods and services, E.g how many of society’s economic resources are devoted to supplying different products such as food, cars, healthcare and defence

Question 17

Productive efficiency

Answer 17

For the economy as a whole occurs when it is impossible to produce more of one good without producing less of another. For a firm it occurs when the average total cost of production is minimised.

Question 18

Allocative efficiency

Answer 18

Occurs when the available economic resources are used to produce the combination of goods and services that best matches people’s tastes and preferences

Question 19

What is a positive statement?

Answer 19

A statement of fact that can be scientifically proven to see if it is correct or incorrect