Topic 1 : Economic Methodology and the Economic Problem

Question 1

What is a need?

Answer 1

What individuals require for basic survival. e,g food, water, and shelter.

Question 2

What is a want?

Answer 2

Desires beyond the basic needs. These add to the Quality Of Life.

Question 3

Why are wants unlimited?

Answer 3

1. New products emerge.
2. Replacing goods after they had been worn out.
3. Greed.
4. Change in consumers’ tastes. e.g., fashion.

Question 4

What is the basic economic problem?

Answer 4

Infinite wants and scarce resources.

Question 5

What is the definition of Economics?

Answer 5

The study of how to allocate scarce resources in the most effective way in order to meet individuals’ needs and wants.

Question 6

What are the factors of production?

Answer 6

1. Capital; man-made resources
2. Enterprise; entrepreneurs
3. Labour; workers
4. Land; natural resources

Question 7

Define the term ‘opportunity cost’

Answer 7

Benefits forgone from the next best alternative.

Question 8

Define the term ‘scarcity’

Answer 8

Resources or goods are limited in relation to human wants and needs.

Question 9

What is the basic economic problem facing all societies?

Answer 9

1. What to produce.
2. How should they be produced?
3. Why should these products be produced?

Question 10

What is a positive statement?

Answer 10

Is one that can be tested, it is factual. (objective)

Question 11

What is a normative statement?

Answer 11

It is based on an opinion, it cannot be tested. (subjective)

Question 12

Define ‘value judgments’

Answer 12

Personal views, feelings and attitudes.

Question 13

Define ‘moral judgments’

Answer 13

What is deemed to be right or wrong by society.

Question 14

Define ‘political judgments’

Answer 14

Decisions that appeal to selected groups of people.

Question 15

What are the main causes of an outward shift in the PPF curve?

Answer 15

1. Higher productivity/efficiency of factor inputs.
2. Better management.
3. Increase in capital and labour supply.
4. Innovation of new products and resources.
5. Discovery of new natural resources (land)

Question 16

What are the main causes of an inward shift in the PPF curve?

Answer 16

1. Damaging effects of natural disasters.
2. Loss of factor inputs caused by conflict/war.
3. Large-scale net outward labour migration (economic depression)
4. A trend decline in the productivity of inputs (persistent recession)

Question 17

What is productive efficiency on a PPF curve?

Answer 17

Any point on the curve.

Question 18

What is ‘Pareto’ efficiency?

Answer 18

To make something better of, something has to be made worse of.

Question 19

What is ‘Allocative’ efficiency?

Answer 19

Economic resources are utilised to produce a combination of goods and services that maximise economic welfare.

Question 20

What does a PPF show?

Answer 20

The different combinations of two goods that can be produced using full employment of resources.

Question 21

Define ‘Ceteris paribus’

Answer 21

Holding other things constant.

Question 22

Why is the PPF curve, not a straight line?

Answer 22

If it was a straight line then it assumes all factors of production (resources) are perfectly transferable.
(this means that a factory worker who has been made redundant can be a surgeon)