Key Terms

Question 1

What is meant by law in economics

Answer 1

A theory or model which has been verified by empirical evidence

Question 2

What is normative economics

Answer 2

The study and presentation of policy prescriptions involving value judgments about the way in which resources are allocated

Question 3

Positive economics

Answer 3

Objective study if allocation of resources

Question 4

Positive statement

Answer 4

Supported and refuted by evidence

Question 5

Normative statement

Answer 5

Cannot be refuted or supported cause value of judgements

Question 6

Nominal values

Answer 6

Values unadjusted for the effects of inflation

Question 7

Real values

Answer 7

Values adjusted for inflation

Question 8

Capital goods

Answer 8

Goods that are used in the production of other goods e.g. office,roads

Question 9

Consumer goods

Answer 9

Goods and services that are used by people to satisfy their needs and wants

Question 10

Capital productivity

Answer 10

Output per unit of capital employed

Question 11

Division of labour

Answer 11

Specialisation by workers who perform different tasks at different stages to make a good or service

Question 12

Labour productivity

Answer 12

Output per worker

Question 13

Primary sector

Answer 13

Extractive and agricultural industries

Question 14

Private sector

Answer 14

The part of the economy owned by individuals companies and charities

Question 15

Public sector

Answer 15

The part of the economy where production is organised by the state or the government

Question 16

Mixed economy

Answer 16

Economy where both the free market mechanism and the government planning process allocate significant proportion of total resources

Question 17

Utility

Answer 17

The satisfaction or benefit derived from consuming a good or a set of goods

Question 18

Demand

Answer 18

The price consumer are paying liking and able to pay

Question 19

Consumer surplus

Answer 19

Difference between how much buyers are prepared to pay for a good and what they actually pay

Question 20

Contraction of demand

Answer 20

When QD for a good falls because it’s price rises

Question 21

Law of diminishing marginal utility

Answer 21

The value or utility that individual consumers gain from one last product consumed falls the greater the number consumed
— the more you have of one product the less tasteful it is and say I had 2 chocolate bars then the third one won’t be as nice as the other two

Question 22

Complement

Answer 22

A good purchased with other goods to satisfy a want. They have a negative cross elasticity of demand

Question 23

Inferior good

Answer 23

A good where demand falls when income increases