Micro 1 - Nature of Economics

Question 1

Define Utility

Answer 1

Satisfaction gained from consuming a product or service

Question 2

What are the two types of economic statements?

Answer 2

Positive and Normative

Question 3

What are positive statements?

Answer 3

Positive statements are objective statements that can be tested by referring to the available evidence.
(They can be proven true or false.)

Question 4

What are normative statements?

Answer 4

Normative statements are subjective statements which contain a value judgement. (They are opinions.)

Question 5

What is Empirical data?

Answer 5

Data collected from experiments or real life observations.

Question 6

Why is economics considered as a social science?

Answer 6

Because it looks at the behaviour of humans either as individuals or as part of organisations and their use of scarce resources.

Question 7

What are some of the processes used by economists to make models?

Answer 7

Use simplifying assumptions to limit the number of variables in an investigation.
Test theories and models against relevant and known facts.
Use empirical data to improve and revise their economic models.

Question 8

What is the name of the assumption used by economists to get around the existence of multiple variables?

Answer 8

Ceteris Paribus

Question 9

When do economists use Ceteris Paribus?

Answer 9

When looking at the relationship between two factors.

Question 10

What is the economic problem?

Answer 10

How can the available scarce resources be used to satisfy people’s infinite needs and wants as effectively as possible?

Question 11

What are the four factors of production?

Answer 11

Land
Labour
Capital
Enterprise

Question 12

What does the factor of production land include?

Answer 12

Land and all the natural resources in and on it.
Eg. Renewable/Non renewable resources
Water
Animals

Question 13

What does labour as a factor of production refer to?

Answer 13

Labour is the work done by those people who contribute to the production process. The population available to work is called the labour force.

Question 14

What does capital as a factor of production refer to?

Answer 14

Capital is the equipment, factories and schools that help to produce goods or services.

Question 15

What does Enterprise as a factor of production refer to?

Answer 15

Enterprise refers to the people (entrepreneurs) who take risks and create things from the other three factors of production.

Question 16

Define renewable resource

Answer 16

A resource whose stock level can be replenished naturally over a period of time.
They require careful management as they may decline if they are consumed faster than the environment can replenish them.

Question 17

Define non-renewable resource

Answer 17

A resource whose stock level decreases over time as it is consumed.

Question 18

Define scarcity

Answer 18

When there are unlimited wants and finite resources.

Question 19

What are the general 3 economic agents?

Answer 19

Producers
Consumers
Governments

Question 20

Define producers

Answer 20

Firms or people that make goods or provide services.

Question 21

Define Consumers

Answer 21

People or firms who buy the goods and services.

Question 22

Define Governments

Answer 22

A government sets the rules that other participants in the economy have to follow but also produces and consumes goods and services.

Question 23

Define opportunity cost

Answer 23

The opportunity cost of a decision is the next best alternative that you give up in making that decision.

Question 24

What are some problems with the concept of opportunity cost

Answer 24

• All alternatives may not be known
• Some factors don’t have alternative uses
• There may be a lack of information on alternatives and their costs
• Some factors can be hard to switch to an alternative use

Question 25

What is the purpose of markets?

Answer 25

Markets are a method for allocating scarce resources

Question 26

What is a trade off?

Answer 26

A trade off is when you have to choose between conflicting objectives because you can’t achieve all of your objectives at the same time. It involves compromising and aiming to achieve each of your objectives a bit.

Question 27

What are some problems of using the concept of opportunity cost?

Answer 27

• Not all alternatives are known
• There may be a lack of information on alternatives and their costs
• Some factors don’t have alternative uses
• Some factors can be hard to switch to an alternative use

Question 28

What is a value judgement?

Answer 28

A value judgement is a decision made based upon a particular set of values

Question 29

What is the basic economic problem?

Answer 29

How can the available scarce resources be used to satisfy people’s infinite needs and wants as effectively as possible?