The Economic Problem

Question 1

Micro economics

Answer 1

Is the study of individual markets, and segments of the economy (individuals and businesses)

Question 2

Positive statements

Answer 2

A positive statement is a testable statement that can be proven to be true or false

Question 3

Normative statements

Answer 3

Is a statement that make a value judgement about what ought to be or what should be

Question 4

4 factors of production

Answer 4

• land
• labour
• capital
• enterprise

Question 5

Land

Answer 5

All the natural resources used in production

Question 6

Labour (workers)

Answer 6

Includes the physical and mental effort exerted by individuals in the production process

Question 7

Capital

Answer 7

Refers to the physical assets or man made resources used in production. (E.g. machinery/ buildings/ money)

Question 8

Enterprise

Answer 8

Refers to the ability and willingness to organise, coordinate, and take risks in the production process.

Question 9

Opportunity cost

Answer 9

The opportunity cost of a choice is the cost of missing out on the next best alternative

Question 10

Factors of production - REWARDS

Answer 10

Land - Rent
Labour - Wages/ salaries
Capital - Interest
Enterprise - Profit

Question 11

The economic problem

Answer 11

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

Question 12

Production possibility frontiers (PPF)

Answer 12

A curve which shows the maximum possible outputs of two goods or services using a fixed amount of inputs

Question 13

A Trade off

Answer 13

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

Question 14

Points outside the PPF

Answer 14

Means output combination isn’t achievable using the current level of resources in the economy. - extra (or better) resources would need to be found.

Question 15

Points on the PPF

Answer 15

Are productively efficient because all the resources are used as efficiently as possible to produce the maximum possible output.

Question 16

Points that lie within the PPF

Answer 16

Inefficient output combinations - not all resources are fully utilised

Question 17

Scarcity

Answer 17

The demand for a good or service is greater than the availability of the good or service

Question 18

PPF - concave shape

Answer 18

Diminishing marginal returns leads to a non constant opportunity cost

Question 19

Law of diminishing marginal returns

Answer 19

Adding an additional factor of production results in smaller increase in output

Question 20

Productive potential

Answer 20

The amount of goods and services that an economy is capable of producing