Key Terms 1 - Economic Methodology and 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 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

Capital Good

Answer 6

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

Question 7

Consumer Good

Answer 7

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

Question 8

Non-Renewable Resource

Answer 8

A resource, such as oil, which is scare and runs out as it is used.

Question 9

Renewable Resource

Answer 9

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

Question 10

Fundamental Economic Problem

Answer 10

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 11

Scarcity

Answer 11

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 12

Opportunity Cost

Answer 12

The cost of giving up the next best alternative.

Question 13

Production Possibility Frontier

Answer 13

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

Question 14

Technical Progress

Answer 14

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

Question 15

Economic Growth

Answer 15

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

Question 16

Choice

Answer 16

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

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

Productive Efficiency

Answer 19

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 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 society’s economic resources are devoted to supplying different products such as food, cars, healthcare and defence.