Economic Methodology and the Economic Problem

Question 1

Positive Statement

Answer 1

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

Question 2

Normative Statement

Answer 2

A statement that includes a value judgement and cannot be refuted just by looking at the evidence

Question 3

Need

Answer 3

Something that is necessary for human survival, such as food, clothing, warmth or shelter

Question 4

Want

Answer 4

Something that is desirable, such as fashionable clothing, but is not necessary for human survival

Question 5

Economic Welfare

Answer 5

The Economic well-being of an individual, a group within society, or an economy

Question 6

Production

Answer 6

A process, or set of processes, that converts inputs into output of goods

Question 7

Capital Good

Answer 7

A good which is used in the production of other goods and services. Also known as a producer good

Question 8

Consumer Good

Answer 8

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

Question 9

Factors of Production

Answer 9

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

Question 10

Finite Resource

Answer 10

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

Question 11

Renewable Resource

Answer 11

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

Question 12

Fundamental Economic Problem

Answer 12

how best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare

Question 13

Scarcity

Answer 13

Results from the fact that people have unlimited wants but resources to meet these wants are limited

Question 14

Opportunity Cost

Answer 14

The cost of giving up the next best alternative

Question 15

Production Possibility Frontier

Answer 15

A curve depicting the various combination of two products (or types of products) that can be produced when all the available resources are fully and efficiently employed

Question 16

Economic growth

Answer 16

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

Question 17

Full employment

Answer 17

When all who are able and willing to work are employed

Question 18

Unemployment

Answer 18

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

Question 19

Choice

Answer 19

Choosing between alternatives when making a decision on how to use scarce resources

Question 20

Resource allocation

Answer 20

The process through which the available factors of production are assigned to produce different goods and services, e.g. How many of the societies economic resources are devoted to supplying different products such as food, cars, healthcare, and defence.

Question 21

Productive efficiency

Answer 21

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 22

Allocative efficiency

Answer 22

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