Unit 1 - Economic Methodology And The Economic Problem

Question 1

Positive statement

Answer 1

A statement of fact that can be scientifically tested to see if it is correct or incorrect

Question 2

Normative statement

Answer 2

A statement that includes a value judgement and cannot be refuted just by looking at the evidence

Question 3

Need

Answer 3

Something that is necessary for human survival, such as food, clothing, warmth and shelter

Question 4

Want

Answer 4

Something that is desirable, such as fashionable clothing, but is not necessary for human survival

Question 5

Economic welfare

Answer 5

The economic well-being of an individual, a group with society or an economy

Question 6

Production

Answer 6

Converts inputs or factor services into outputs of goods and services

Question 7

Capital good (also known as a producer good)

Answer 7

A good which is used in the production of other goods or services

Question 8

Consumer goods

Answer 8

A good which is consumed by individuals or households to satisfy their needs or wants

Question 9

Factors of production

Answer 9

Inputs into the production process, such as land, labour, capital and enterprise

Question 10

Fundamental economic problem

Answer 10

How best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare

Question 11

Scarcity

Answer 11

Results from the fact that people have unlimited wants but resource to meet these wants are limited. In essence, people would like to consume more goods and services than the economy is able to produce with its limited resources

Question 12

Opportunity cost

Answer 12

The cost of giving up the next best alternative

Question 13

Production possibility frontier

Answer 13

A curve depicting the various combinations of two products (or types of products) that can be produced when all the available resources are fully and efficiently employed

Question 14

Technical progress

Answer 14

New and better ways of making goods and new techniques for producing more output from scarce resources

Question 15

Economic growth

Answer 15

The increase in the potential level of real output the economy can produce over a period of time

Question 16

Full employment

Answer 16

When all who are able and willing to work are employed

Question 17

Unemployment

Answer 17

When not all of those who are able and willing to work are employed

Question 18

Resource allocation

Answer 18

The process through which the available factors of production are assigned to produce different goods and services, e.g. how many of a society’s economic resources are devoted to supplying different products such as food, cars, healthcare and defence

Question 19

Productive efficiency

Answer 19

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