them 1: introduction to economics

Question 1

Economy

Answer 1

The state of a country or region in terms of the production and consumption of goods and services and the supply of money

Question 2

The Basic
Economic
Problem

Answer 2

The basic economic problem is that there are scarce resources and infinite wants.
In order to solve the problem three questions must be answered –
…what goods to produce? …how to produce them? …and for whom should the goods be produced?

Question 3

Opportunity

Cost

Answer 3

The Opportunity Cost is the sacrifice
made of the next best alternative
foregone.

Question 4

Production
Possibility
Frontier

Answer 4

A Production Frontier Diagram shows how much it is possible to make of two different goods with a given amount of resources. For example Good X and Good Y could be iPads and Laptops. It is curved because some of the resources needed are the same but some are not.

Question 5

diminishing marginal returns

Answer 5

The law of diminishing marginal returns is a theory in economics that predicts that after some optimal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output

Question 6

Factors of Production

Answer 6

Factors of production are the inputs needed for the creation of a good or service.

Question 7

Land

Answer 7

is defined as the free gifts of nature. This therefore includes the earth the sea and all the minerals animals and plants which is contained within them.
factor income-rent

Question 8

labour

Answer 8

is defined as the exercise of human mental and physical effort in the production of goods and services.
factor income-wages

Question 9

Capital

Answer 9

is defined as all those goods which are used in the production of further wealth. Fixed capital includes buildings and machinery. Working capital includes stocks of raw materials that have already been harvested.
factor income-interest

Question 10

Enterprise

Answer 10

is the creative idea or risk taken by an entrepreneur.

factor income-profits

Question 11

specialisation

Answer 11

Specialisation involves individuals, firms, regions or whole economies concentrating their efforts on the production of some goods and services rather than others.

Question 12

Division of Labour

Answer 12

This involves separating economic tasks into areas of specialisation in order to make a more efficient use of scarce resources.

Question 13

positive statement

Answer 13

a positive statement is something that can be proved to be true

Question 14

normative statement

Answer 14

a statement that cannot be tested, and is based on a value judgement.

Question 15

value judgement

Answer 15

value judgement is an opinion

Question 16

Models

Answer 16

An economic model is a hypothetical system we create to simplify something that happens in the real world.

Question 17

Assumptions

Answer 17

To make our models simple we assume some things are true to make it more like a scientific experiment.

Question 18

Ceteris Paribus

Answer 18

all other things remaining equal/constant

Question 19

habitual behaviour

Answer 19

This is the idea that consumers may pick a certain product irrationally because they
are used to buying that product; making a habit out of certain behaviours means the
decision becomes a default one and it is unlikely to change.

Question 20

other peoples behaviour

Answer 20

Consumers may not pick the most efficient good for maximising their utility because other people have given bad
reviews or because they wish to buy the same good as everybody else.

Question 21

computational weakness

Answer 21

people may not have all the information readily available to them in order for them to make a rational decision