economic methodology + the economic problem

Question 1

Normative statement

Answer 1

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

Question 2

Positive statement

Answer 2

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

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 a mobile phone, 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

Economic system

Answer 6

The set of institutions within which a community decides what, how and for whom to produce

Question 7

Market economy

Answer 7

An economy in which goods and services are purchased through the price mechanism in a system of markets

Question 8

Command economy / Planned economy

Answer 8

An economy in which government officials or planners allocate economic resources to firms and other productive enterprises

Question 9

Mixed economy

Answer 9

An economy that contains both a large market sector and a large non-market sector in which the planning mechanism operates

Question 9

Production

Answer 9

Converts inputs or factor services into outputs of goods and services

Question 9

Capital good / Producer good

Answer 9

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

Question 9

Consumer good

Answer 9

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

Question 10

Factors of production

Answer 10

Inputs into the production process (land, labour, capital and enterprise)

Question 11

Renewable resource

Answer 11

A resource (e.g. timber) that with careful management can be renewed as it is used

Question 11

Non-renewable resource / Finite resource

Answer 11

A resource (e.g. oil) that is scarce and runs out as it is used

Question 11

Fundamental economic problem

Answer 11

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 12

Opportunity cost

Answer 12

The cost of giving up the next best alternative

Question 13

Scarcity

Answer 13

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 13

Choice

Answer 13

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

Question 14

Production possibility frontier

Answer 14

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

Question 15

Technical progress

Answer 15

New and better ways of making goods and new techniques for producing more output from scarce resources

Question 16

Economic growth

Answer 16

The increase in the potential level of real output the 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

Resource allocation

Answer 19

The process through which the available factors of production 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 20

Productive efficiency

Answer 20

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