Economic Metholodogy

Question 1

Objective statements

Answer 1

Deals with an objective explanation and the testing and rejecting of theories

Question 2

Subjective statements

Answer 2

Carry value judgements about what ought to be

Question 3

Rational consumers

Answer 3

Wish to maximise their satisfaction or utility from consumption by correctly choosing how to spend their limited income

Question 4

Producers/firms

Answer 4

Wish to maximise profits, by producing at lowest cost, the goods and services that are desired by consumers

Question 5

Government

Answer 5

Wishes to improve the economic and social welfare of citizens

Question 6

Ceteris paribus

Answer 6

All else being equal

Question 7

Free market economists

Answer 7

Believe that the market forces should allocate resources in society

Question 8

Interventionists

Answer 8

Believe that governments should have a more prominent role in allocating resources within society

Question 9

Social welfare economists

Answer 9

Either directly or through imposing regulations on markets to enable them to allocate resources more ‘fairly’ or in a way which does not damage society

Question 10

Government spending priorities

Answer 10

Opportunity cost of the gov. spending and extra £10billion on investment in NHS may be that £10 billion less is available for spending on education

Question 11

Ways to ration scarce resources

Answer 11

-by market price -by consumer income -by need -by house postcode -by education level -by age -by gender -by nationality

Question 12

Free market

Answer 12

Markets allocate resources. Driven by profit motive. Limited role for state. Private sector dominates

Question 13

Mixed economy

Answer 13

Mix of state and private ownership. Government intervention in markets. Mix will vary from country to country

Question 14

Command economy

Answer 14

Most resources are state owned. Planning allocates resources. Little role for market prices

Question 15

State-Owned Industries

Answer 15

Businesses wholly or part state-owned, like Royal Bank of Scotland, or Network Rail

Question 16

Welfare State

Answer 16

Broad range of welfare benefits, Universal, Means-tested

Question 17

Government spending on public service

Answer 17

Spending on education and health, Capital spending on infrastructure

Question 18

Capital goods

Answer 18

Goods used to make consumer goods and services

Question 19

Consumer durables

Answer 19

Products that provide a steady flow of utility over their working life (smartphone)

Question 20

Consumer non-durables

Answer 20

Products that are used up in the act of consumption (coffee)