Nature Of Economics Definitions

Question 1

Economic Models (3)

Answer 1

• A simplified description of reality
• Designed to yield hypotheses about economic behaviour
• That can be tested

Question 2

Social Science (2)

Answer 2

• Concerned with socieity
• And the relationships amongst individuals within society

Question 3

Ceteris Paribus (1)

Answer 3

All other things being equal

Question 4

Positive Statement (3)

Answer 4

• Value-free
• Objective
• Testable

Question 5

Normative Statements (3)

Answer 5

• Subjective
• Non-Testable
• Value judgements

Question 6

Scarcity (2)

Answer 6

• Scarcity results from finite resources
• Being unable to produce enough to fufil infinite wants

Question 7

Opportunity cost (2)

Answer 7

• This is the next best alternative
• Which is foregone
• Whenever an economic decision is made

Question 8

Renewable resources (2)

Answer 8

• Resources that are replanished by natural processes
• At a rate comparable or faster than its rate of consumption by humans or other users

Question 9

Land (3)

Answer 9

• Natural resources
• That is any free gift of nature
• eg coal reserves or fish in the sea
• Its reward is rent

Question 10

Capital (3)

Answer 10

• Producer goods
• That only indirectly satisfy wants
• eg machinery and factories
• Its reward is interest

Question 11

Cconsumer goodS (1)

Answer 11

Goods trhat directly satisfy wants

Question 12

Enterprise (3)

Answer 12

• Organises and controls the other factors
• And takes the risk in the production process
• Its reward is profit

Question 13

Production Possibility Frontier (3)

Answer 13

• A curve showing the maximim possible alternative combinations of two goods that an economy can produce
• Using all the available factors of production efficiently
• Moving from one point on the curve to another indicates the opportunity cost of increasing one item’s production in terms of the units of the other foregone

Question 14

Allocative efficiency (2)

Answer 14

• Producing the correct bundle of goods to maximise welfare
• For a firm it means producing where price = marginal cost

Question 15

Division of Labour (2)

Answer 15

• The separation of tasks in the production process
• And their allocation to different groups of workers

Question 16

Diminishing Marginal Returns (DMR) (2)

Answer 16

• This is the idea that a successive units of a variable factor are added to a fixed factor
• That extra unit of the variable factors adds less output than the one before it

Question 17

Short run (1)

Answer 17

The time period in which at least one factor of production is fixed

Question 18

Long run (1)

Answer 18

The time period in which all factors are variable

Question 19

Market economy (4)

Answer 19

• An economy based on competition
• The private ownership of factors
• Little government intervention
• And where the price mechanism determines the allocation of scarce resouces through market forces of supply and demand

Question 20

Control Economy (2)

Answer 20

• A type of economic system whre the resources are state owned
• And their allocation and use is determined by the centralized decisions of a planning authority (eg North Korea)

Question 21

Mixed Economy (3)

Answer 21

• An economic system which is a combination of Market and Command economic sytems
• Where market forces control the allocation of some resources
• But also governments intervene in the allocation to try correct market failures

Question 22

Transition Economy (1)

Answer 22

• An economy which is changing from a planned economy to a free market

• This economic change (letting market forces set price, lowering trade barriers, and moving from public to private ownerhip of resource) often leads to intial high inflation and may lead to increased inequality of incomes and wealth

Question 23

Competitive Markets (3)

Answer 23

• Characterised by a large number of buyers and sellers
• Freedom to enter and exit the market
• And a homogenous product (of the same kind or similar nature)