The nature of Economics

Question 1

what does ceteris paribus mean?

Answer 1

“all things being equal”

the assumption that, whilst the effects of a change in one variable are being investigated, all other variables are kept constant.

Question 2

why is there an inability in economics to make scientific experiments?

Answer 2

It is difficult to set up experiments to test hypothesis. Economics measures behavior which is unpredictable.

Question 3

what is a positive statement?

Answer 3

positive statements are objective statements based on evidence or facts, which can, therefore be proven or disproven.

Question 4

what is a normative statement?

Answer 4

normative statements are subjective statements based on value judgements and cannot be proven or disproven.

Question 5

how do value judgements influence economic decision making?

Answer 5

this is where economists use positive statements to back up normative statements. Different
economists may make different judgements from the same statistic.

Question 6

why does scarcity exist?

Answer 6

exists because resources are finite whereas wants are infinite.

Question 7

what is the problem of scarcity?

Answer 7

all societies face the problem wants are infinite but resources are limited in supply. this is the underlying reason for the problem of scarcity. therefore decisions must be made.

Question 8

what are the 3 questions society will have to face as a result of scarcity?

Answer 8

1. what to produce?
2. how to produce?
3. who consumes what is produces, how to allocate goods/services?

Question 9

what does CELL stand for?

Answer 9

Capital
Enterprise
Land
Labour

Question 10

what are factors of production?

Answer 10

resources that include land, labour, capital and enterprise

Question 11

what is land?

Answer 11

includes all natural resources, raw materials, the fertility of the soil and resources found in the sea

Question 12

what is labour?

Answer 12

refers to those involved in the production of goods and services and includes all human effort both physical and mental.

Question 13

what is capital?

Answer 13

any man-made aid to production including factory buildings, offices, machinery, IT equipment to make other goods and services.

Question 14

what is enterprise?

Answer 14

performs 2 tasks:

1. bringing together the other factors of production so that goods and services can be produced
2. taking risks involved in production

Question 15

what are renewable resources?

Answer 15

can be replaced naturally after use, stock levels can be maintained at a certain level e.g. solar energy, wind power

Question 16

what are non-renewable resources?

Answer 16

resources which will be eventually be completely depleted, continued consumption will eventually lead to their exhaustion

Question 17

what is opportunity cost?

Answer 17

the next best alternative that is foregone when a choice is made

Question 18

what is an economic good?

Answer 18

are created from resources that are limited in supply and so are scarce, consequently commanding a price.

Question 19

what is a free good?

Answer 19

are unlimited in supply e.g. sunlight. consumption by 1 person does not limit consumption by others. therefore, opportunity cost of consuming a free good is 0

Question 20

what is the production possibility frontier (PPF)?

Answer 20

it illustrates the maximum potential output of an economy when all resources are fully employed

Question 21

what are capital goods?

Answer 21

those required to produce other goods both capital and consumer

Question 22

what are consumer goods?

Answer 22

those that give satisfaction (or utility) to consumers e.g. smartphones, cars, fast food