Topic 1 - Economic Methodology and The Economic Problem

Question 1

Ceteris Paribus

Answer 1

An important assumption “all other things being equal”

Question 2

Allocative Efficiency

Answer 2

When economic resources are utilised to produce the combination of goods and services that maximises economic welfare.

Question 3

Allocative Price Function

Answer 3

Prices allocate resources away from markets with excess supply to markets with excess demand

Question 4

Capital

Answer 4

Producer goods

Question 5

Capital / Producer Goods

Answer 5

Goods being used in the production of other goods.

Question 6

Choice

Answer 6

Selecting one of multiple alternatives when deciding how to allocate scarce resources.

Question 7

Consumer Good

Answer 7

Good consumed by households & individuals, used to satisfy needs and wants.

Question 8

Economic Welfare

Answer 8

The economic satisfaction/wellbeing of individuals/households/groups in an economy.

Question 9

Enterprise

Answer 9

The ability to utilise factors of production effectively

Question 10

Factors Of Production

Answer 10

Inputs of the production process, such as capital, enterprise, land and labour (CELL)

Question 11

Finite Resource

Answer 11

Non-renewable resource that becomes increasingly scarce

Question 12

Fundamental Economic Problem

Answer 12

Deciding best how to allocate scarce resources to maximise overall economic welfare.

Question 13

Imperfect Information

Answer 13

When individuals lack the information to make the best decision.

Question 14

Incentive Price Function

Answer 14

Price creates incentives for people to adjust their economic transactions

Question 15

Infrastructure

Answer 15

Facilities required for an economy to function

Question 16

Labour

Answer 16

Workers with human capital

Question 17

Land

Answer 17

Natural physical materials, as well as space for fixed capital

Question 18

Need

Answer 18

Something necessary for human survival e.g food, shelter

Question 19

Normative Statement

Answer 19

Value based/opinion based/subjective

Question 20

Positive Statement

Answer 20

Objective and fact based. The statements are precise, descriptive and clearly measurable

Question 21

Opportunity Cost

Answer 21

Cost of giving up alternatives, after selecting one option from a choice

Question 22

Pareto efficiency

Answer 22

State of resource allocation, where in order to make an economic agent better off, another agent is made worse off

Question 23

Production Possibility Frontier (PPF)

Answer 23

A curve displaying the various combinations of two products that can be produced when all available resources are fully and efficiently employed

Question 24

Rationing Price Function

Answer 24

Prices rise to ration demand for goods

Question 25

Renewable Resource

Answer 25

Restorable resource that can be replenished

Question 26

Scarcity

Answer 26

Resulting from the concept of infinite wants and needs, but limited resources

Question 27

Signalling Price Function

Answer 27

Prices provide information to buyers and sellers, influencing economic decisions

Question 28

Trade

Answer 28

Buying and selling of goods and services

Question 29

Want

Answer 29

Something desirable, yet not necessary for human survival

Question 30

Demand

Answer 30

The amount of a good or service that consumers are willing able to buy at any given price

Question 31

Productive Efficiency

Answer 31

Occurs when it is impossible to produce more of one good without producing less of the other. For a firm it occurs when the average of the total cost of production is minimised