Topic 1 - Economic methodology and the economic problem

Question 1

Define; ‘Economics’

Answer 1

The study of how the worlds scarce resources are allocated to competing uses to satisfy individual wants.

Question 2

Positive Vs Normative

Answer 2

Positive can be tested against fact.

Normative is based on opinion or valued judgement

Question 3

Need Vs Want

Answer 3

Need; Consumption that is required for survival

Want; Consumption that will improve the quality of life

Question 4

Define; ‘Economic Welfare’

Answer 4

The standard of living or general well being of people in society

Question 5

Define; ‘Factors of Production’

Answer 5

Factors of production are the resources available o supply goods or services inside an economy

Question 6

List the 4 factors of production

2 examples for each

Answer 6

Land - Coal, wood
Labour - Workforce
Capital - Machinery, factory
Enterprise - Entrepreneur, financial capital

Question 7

Explain the basic economic problem

Answer 7

There are scarce resources (supply) in comparison to society’s unlimited want (demand)

Question 8

Briefly summarise the three fundamental economic questions

Answer 8

What goods and services should be made?
How should they be made?
To whom should they be given?

Question 9

Define; ‘opportunity cost’

Answer 9

The cost of choosing the ‘next best alternative’

Question 10

Explain the difference between a free good and an economic good

Answer 10

Economic good; Opportunity cost of consumption
Uses scarce resources
Free good; No opportunity cost of consumption
Isn’t a scarce resource (air)