Micro 3.1.1 methodology and economic problem

Question 1

define externalities

Answer 1

positive or negative effect on someone as a result of something you do

Question 2

identify the two types of externalities and examples

Answer 2

• positive externalities - install solar pannles on a house
• negative externalities - breathing around people who smoke

Question 3

define positive and normative statement

Answer 3

positive - Objective, fact-based assertions that can be tested and validated through observation, data, or empirical evidence
normative - Subjective assertions that reflect opinions, beliefs, or value judgments about what ought to be. These statements cannot be proven true or false

Question 4

what are the 4 main type of economic resources (factors of production)

Answer 4

1. land
2. labour
3. capital
4. enterprise

Question 5

how can the productive potential of the whole economy be improved by

Answer 5

1. increase in available resources
2. existing resources becoming more productive or efficient

Question 6

define opportunity costs

Answer 6

the cost of a decision as measured by the benefits forgone of the next best alternative

Question 7

define scarcity and how does it come about

Answer 7

• short in supply
• arises because land, labour, capital, and entrepreneurship are finite

Question 8

definition of resources that are scarce and not scarce

Answer 8

1. scarce resources are called ECONOMIC GOODS - goods that have an opportunity cost in consumption
2. resources that arent scarce (air) called FREE GOODS - zero opportunity cost, consumed as much as they want

Question 9

what is the basic economic problem

Answer 9

wants are unlimited and resources are finite

Question 10

PPF diagram

Question 11

what are the 3 main points on a ppf curve and the opportunity cost

Answer 11

Efficient Points - Any point on the PPF curve represents an efficient allocation of resources, where the economy is producing at its maximum potential.
Inefficient Points - Points inside the curve indicate inefficiency, where resources are not being fully utilised.
Unattainable Points - Points outside the curve are unattainable with the current level of resources and technology.
Opportunity Cost - The slope of the PPF represents the opportunity cost, showing the amount of one good that must be sacrificed to produce more of another.

Question 12

define economic welfare

Answer 12

the level of prosperity and standard of living of either an indiviudal or group of people