NATURE OF ECONOMICS KEY QUESTIONS

Question 1

What is meant by a model in economics?

Economics as a social science

Answer 1

A MODEL is a simplified representation of reality which can be used to provide insights.

Question 2

What is meant by Ceteris Paribus?

Economics as a social science

Answer 2

it means “everything else the same” ( it is when all variables are kept the same except one).

Question 3

Give an example of when you would use the Ceteris Paribus assumption?

(Economics as a social science)

Answer 3

How the price of a good would change demand providing you kept all other influences the same..

Question 4

Why do economists use models, assumptions and Ceteris Paribus?

(Economics as a social science)

Answer 4

• They want to predict what could happen in the future when one variable is changed.
• They can be used to describe past events.
• Thy are a simple variation of what will happen in reality when a variable is changed.

Question 5

How does Economics vary from a science like physics?

Economics as a social science

Answer 5

In Physics variables can be kept constant but it is impossible to keep variables constant In reality.

Question 6

What is Positive Economics ?

Positive and normative economics statements

Answer 6

the study of economics based on objective analysis and can be testable or refutable.

Question 7

What is Normative economics?

Positive and normative economic statements

Answer 7

the study of economics based on subjective analysis as it “ought” or “should” be right

Question 8

What keywords can be associated with Positive statements?

Positive and normative economic statements

Answer 8

• A positive statement is one that is “factual” and can be tested or “refuted”.

Question 9

What keywords can be associated with Normative statements?

Positive and normative economic statements

Answer 9

A statement based on subjective evidence what “ought” or “should be correct” that entails a value judgement.

Question 10

How does value judgement effect policy making?

Answer 10

This makes the policy Normative which means it is based on subjective analysis.

Question 11

What is the central purpose of economic activity?

THE ECONOMIC PROBLEM

Answer 11

To produce goods and services to satisfy needs and wants.

Question 12

What is the fundamental Economic problem?

THE ECONOMIC PROBLEM

Answer 12

The problem of scarcity.

This is the situation that arises when there are unlimited wants but limited resources.

Question 13

Name the four categories of economic resources.

what are they also known as?

(THE ECONOMIC PROBLEM)

Answer 13

C.E.L.L
Capital
Entreprise 
Land 
Labour.

Factors of production.

Question 14

Name the 3 things that would be physical capital.

(what is the definition?)

(THE ECONOMIC PROBLEM)

Answer 14

Factory machinery
Cash
Real estate

Physical capital is the apparatus used to produce a
good or service.

Question 15

Name 3 things that would be Land.

(what is the definition?)

(THE ECONOMIC PROBLEM)

Answer 15

The physical land that they own.

Anything that comes from the land eg timber.

(all the natural resources that help create supply)

Question 16

Name 3 things that would be Labour.

(what is the definition?)

(THE ECONOMIC PROBLEM)

Answer 16

(The work done by people.)

factory worker.

working in fields.

Question 17

What is Enterprise?

THE ECONOMIC PROBLEM

Answer 17

The skill to drive an idea into a business.

Entrepreneurs organise production and make decisions (taking on risk)

Question 18

How does enterprise differ from labour?

THE ECONOMIC PROBLEM

Answer 18

Enterprise is the skill of taking an idea into a business

However, labour is the physical work needed to produce a good or service.

Question 19

Distinguish between renewable and non renewable resources.

THE ECONOMIC PROBLEM

Answer 19

Renewable resources can be regenerated unless they are depleted.

Non-renewable resources are finite and will run out.

Question 20

Why is choice a necessary element in the economic problem?

THE ECONOMIC PROBLEM

Answer 20

Because the “choice” is the decision to allocate resources to that given good coming at the cost of something else.

Question 21

What is meant by opportunity cost and give a numerical example?

(THE ECONOMIC PROBLEM)

Answer 21

opportunity cost is the option that is forgone when making a decision ; the next best alternative.

If someone purchased an ice cream for £2 the opportunity cost would be keeping the £2.

Question 22

Give 3 examples of opportunity costs that consumers face?

THE ECONOMIC PROBLEM

Answer 22

• Buying from one brand and not the other.
• spending their money on a good or service rather than keeping it.
• getting the product delivered rather than getting it in the store.

Question 23

Give 3 examples of opportunity costs producers face?

THE ECONOMIC PROBLEM

Answer 23

making a higher quality product or keeping costs down.

Producing ethically or keeping costs down.

Making the employee happy or paying them minimum wage.

Question 24

Give 3 examples of opportunity costs the government faces?

THE ECONOMIC PROBLEM

Answer 24

Having taxes high or having taxes low.

spending funds on building a new hospital or a new airport.

Imposing a national lockdown or keeping the nation working with increased risk.