1) Economic methodology + the economic problem

Question 1

Define positive and normative statements

Answer 1

Positive statements can be proven or disproven and are based on facts.
Normative statements cannot be proven and are based on opinions, reflecting value judgements.

Question 2

Define moral, value, and political judgements

Answer 2

Moral judgements are based on what is deemed to be right or wrong.
Value judgements are based on right or wrong in a given situation.
Political judgments are based on the need to appeal to electorate or selected groups.

Question 3

What are the key economic decisions?

Answer 3

What to produce, how to produce and who is to benefit from the goods and services produced.

Question 4

What is scarcity and opportunity costs?

Answer 4

Scarcity means that choices have to be made about how scarce resources are allocated between different uses. An opportunity cost is the next best alternative forgone.

Question 5

What does a production possibility diagram show?

Answer 5

A production possibility diagram shows the maximum combination of goods and services that an economy can produce in a time period with the resources available. They illustrate features of the fundamental economic problem, such as: resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth.