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’s correct or incorrect

Question 2

Normative statement

Answer 2

A statement that includes a value judgement and can’t 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 or 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, or a group within society or an economy

Question 6

Production

Answer 6

A process, or set of processes, that converts inputs into output of goods

Question 7

Capital good

Answer 7

A good which is used in the production of other goods or services. Also known as a producer good.

Question 8

Consumer good

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

Finite resources

Answer 10

A resource such as oil, which is scarce and runs out as it’s used. Also known as a non-renewable resource.

Question 11

Renewable resource

Answer 11

A resource that can be renewed as it’s used.

Question 12

Fundamental economic problem

Answer 12

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 13

Scarcity

Answer 13

Results from the fact that people have unlimited wants but resources to meet these are limited. People want to consume more goods and services than the economy can produce its limited resources.

Question 14

Opportunity cost

Answer 14

The cost of giving up the next best alternative

Question 15

Production possibility frontier

Answer 15

A curve depicting the various combinations of 2 products that can be produced when all available resources are fully and efficiently employed.

Question 16

Choice

Answer 16

Choosing between alternatives when making a decision on how to use scarce resources

Question 17

Resource allocation

Answer 17

The process through which the available factors of production are assigned to produce different goods/services

Question 18

Productive efficiency

Answer 18

For the economy as a whole occurs when it’s 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.

Question 19

Allocative efficiency

Answer 19

Occurs when the available economic resources are used to produce the combination of goods and services that best matches people’s tastes and preferences.