Key Info for Chapter 1 - Economic methodology and the economic problem

Question 1

Microeconomics

Answer 1

deals with individual decisions from households to firms in a particular market

Question 2

macroeconomics

Answer 2

considers performance of the economy as a whole

Question 3

Recession

Answer 3

decrease in GDP for two consecutive quarters

Question 4

Social Science

Answer 4

the branch of science that studies society and the relationships of individuals within a society

Question 5

Positive Statements

Answer 5

Statements that can be proven or disproven

Question 6

Normative Statements

Answer 6

statements that cannot be scientifically supported and is based on a valued judgement and personal opinion

Question 7

Inflation

Answer 7

a general increase in prices and fall in the purchasing value of money

Question 8

Deflation

Answer 8

price increasing at a slower rate

Question 9

Discretionary Spending

Answer 9

money left to spend on what you want after bills

Question 10

Examples of physiological needs

Answer 10

Water, food, shelter, warmth

Question 11

examples of emotional need

Answer 11

companionship

Question 12

examples of wants

Answer 12

cars, holidays, designer clothes etc

Question 13

define needs

Answer 13

necessity for human survival

Question 14

define wants

Answer 14

something desirable but not necessary for human survival

Question 15

economic welfare

Answer 15

economic wellbeing on an individual, a group within society or an economy

Question 16

welfare

Answer 16

human happiness, more material goods tend to make people more happy

Question 17

what are the 4 factors of production

Answer 17

land, labour, capital and enterprise

Question 18

basic economic problem

Answer 18

demand for goods is high and the resource and supply is scarce

Question 19

fundamental economic problem

Answer 19

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

Question 20

scarcity

Answer 20

a situation that arises from the fact that people have unlimited wants but resources to meet this are unlimited

Question 21

opportunity cost

Answer 21

the cost of giving up the next best alternative when the choice is made

Question 22

consumer goods

Answer 22

goods bought by individuals and households to satisfy their wants and needs. goods such as iPods and TVs are consumer durable goods, food and washing powder and nondurable consumer goods

Question 23

Capital goods

Answer 23

goods such as raw materials and machines that are used to produce other goods. capital goods are very important for economic growth

Question 24

In a PPF graph what does a point on the line mean

Answer 24

most efficient

Question 25

In a PPF graph what does a point inside the line mean

Answer 25

inefficient

Question 26

In a PPF graph what does a point beyond the line mean

Answer 26

not possible with current resources

Question 27

In a PPF graph what does a straight line mean

Answer 27

Opportunity cost is constant

Question 28

What does scarcity mean

Answer 28

unlimited wants vs limited resources

Question 29

What does productive efficiency mean

Answer 29

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

Question 30

What does allocative efficiency mean

Answer 30

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

Question 31

In a PPF graph, what happens to the quality and quantity to make the line move to the right?

Answer 31

increase

Question 32

In a PPF graph, what happens to the quality and quantity to make the line move to the left?

Answer 32

decrease

Question 33

List 4 examples of market only goods

Answer 33

Trains, planes, food, clothing

Question 34

List 4 government only goods

Answer 34

Train tracks, roads, defence, fire service

Question 35

List 5 government and market goods

Answer 35

healthcare, postal services, housing, pension, education