Topic 1.1 - 1.4: Economic Methodology

Question 1

Social science

Answer 1

describes the way in which people interact and how they behave with each other

Question 2

Natural science

Answer 2

relates to the physical world and definite facts

Question 3

Ceteris paribus

Answer 3

assuming other factors/things are being held constant

Question 4

Economist models

Answer 4

built by real life scenarios and make further assumptions based off of these models

Question 5

Positive Statements

Answer 5

objective, with factual statements

Question 6

Normative statements

Answer 6

Subjective opinionated statements based off value judgements

Question 7

Value judgements (and best option)

Answer 7

Value judgements are evaluative processes based on an individual’s standards or priorities.

Best value judgements would be influenced by the positive consequences of different decisions

Question 8

Economic activity

Answer 8

The central purpose of economic activity is the production of goods and services to satisfy needs and wants

Question 9

Key economic decisions

Answer 9

what to produce (govt sector may be wary of opportunity cost), how to produce (lower costs = higher profits therefore decision between labour intensive or capital intensive production) and who will benefit

Question 10

Economic resources

Answer 10

These are also known as factors of production - capital, entrepreneurshipm land and labour

Question 11

Capital

Answer 11

investment used to buy goods/machines used in the production process.
Reward: interest (if you decide to keep it in a bank account to gain interest)

Question 12

Entrepreneurship

Answer 12

taking risks/decisions to positively impact a business
Reward: Profit

Question 13

Land

Answer 13

natural resources (oil,coal) or physical space
Reward: rent

Question 14

Labour

Answer 14

human capital - workforce for economy
Reward: wages

Question 15

Renewable

Answer 15

assumes the rate of replenishment is greater than the rate of consumption

Question 16

Fundamental economic problem

Answer 16

Scarcity: results from limited resources and unlimited wants.
Scarcity means that choices have to be made about how scarce resources are allocated between different uses.

Question 17

Opportunity cost

Answer 17

The benefit lost from the alternative in a decision. Choices (resource allocation) have opportunity cost.