The Economic Methodology and the economic problem ( Micro )

Question 1

What’s a Positive and a Normative Statement?

Answer 1

Positive statements can be scientifically tested to see whether it’s incorrect, very objective
Normative statements are all about value judgements and opinions, they’re very subjective

Question 2

What are the four factors of production?

Answer 2

Land, labour, capital, enterprise

Question 3

What are the rewards for the four factors of production?

Answer 3

Land = Rent
Labour = Wages
Capital = Interests
Enterprise = Profits

Question 4

How do you calculate profit?

Answer 4

Revenue - Costs

Question 5

What is the fundamental economic problem?

Answer 5

Scarcity

Question 6

What’s opportunity cost?

Answer 6

The cost of giving up the next best alternative

Question 7

What’s this graph called?

Answer 7

Production Possibility frontier

Question 8

On this graph, where would Capital and Consumer goods go?

Answer 8

Consumer goods X axis Capital goods Y axis

Question 9

What is “productive efficiency”?

Answer 9

Maximising output from available inputs

Question 10

Where on this graph would an economy operate in productive efficiency?

Answer 10

On the outermost curve, the blue line

Question 11

What is “allocative efficiency”?

Answer 11

When an economy reaches a state in which it’s impossible to improve the overall economic welfare by reallocating resources, meaning price must equal marginal cost in every market