Economic Problem

Question 1

What’s a positive statement?

Answer 1

• It can be scientifically proven, not necessarily true
• Includes words such as ‘will’, ‘was’ and ‘is’

Question 2

What is a normative statement?

Answer 2

• It’s when it makes a value judgement, it’s hypothetical
• It includes ‘should’ and ‘ought’

Question 3

What is the CEP?

Answer 3

Scarcity

Question 4

What is scarcity?

Answer 4

• It’s when there is unlimited wants but finite resources

Question 5

What is opportunity cost?

Answer 5

It’s the next best alternative.

Question 6

What is an economy?

Answer 6

It’s a social organisation that determines what, how and whom to produce are mad.

Question 7

What are the 3 parts of the CEP?

Answer 7

• What is produced?
• How is it produced?
• Whom is it produced for?

Question 8

What are the factors of production?

Answer 8

• Land = Rent
• Labour = Wage
• Capital = Interest
• Entrepreneurship = Profit

Question 9

What are the sectors of the economy?

Answer 9

• Primary = Raw materials are extracted
• Secondary/Manufacturing = Raw materials converted into goods
• Tertiary/Service = Transformed into services eg. transport

Question 10

What are the types of goods?

Answer 10

• Consumer = Clothing, Food
• Capital = Machinery

Question 11

What is utility?

Answer 11

It’s the satisfaction gained from consuming a unit of a good.

Question 12

What is marginal utility?

Answer 12

It’s the additional satisfaction gained from consuming an extra unit of the product.

Question 13

What is diminishing marginal utility?

Answer 13

It’s derived from goods/services, it decreases for each additional unit consumed.

Question 14

What are the factors determining demand?

Answer 14

• Population
• Price
• Income
• Tastes/Preferences
• Complementary goods
• Substitutes

Question 15

What are the factors of supply?

Answer 15

ROTTEN
- Resources cost and availability
- Other goods’ prices
- Taxes, subsidies, gov regulations
- Technology (productivity)
- Expectations of the producer
- Number of firms in the industry

Question 16

What is a substitute good?

Answer 16

It’s when a good is in competing demand; increased prices cause a decreased demand.

Question 17

What is a complementary good?

Answer 17

It’s when a good is in joint demand ed. car and petrol.

Question 18

What is a normal good?

Answer 18

As income increases, quantity demanded increases.

Question 19

What is an inferior good?

Answer 19

As income increases, quantity demanded decreases.

Question 20

What is a Veblen good?

Answer 20

It’s a snob good, indicative of social status.

Question 21

What is speculative demand?

Answer 21

Eg. Housing. If prices increase, people assume it will rise even further.

Question 22

What is a giffen good?

Answer 22

Eg. Poor family. If price of potatoes increases and family buy the same quantity, they can’t afford meat.

Question 23

What are the causes of an outward shift of a PPF?

Answer 23

• Increased productivity
• Increased stock of capital and labour
• Innovation and invention of new products and resources
• Discovery of new natural resources
• Better management of inputs

Question 24

What are the causes of an inward shift in a PPF?

Answer 24

• Decreased productive potential
• Resource depletion