1.1 Nature Of Economics

Question 1

Scientific Method

Answer 1

A method which subjects theories or hypotheses to falsification by empirical evidence

Question 2

Laws

Answer 2

A theory or model which has been verified by empirical evidence AND has gained universal acceptance

Question 3

Social Science

Answer 3

The study of societies and human behaviour using a variety of methods (including scientific method)

Question 4

Economics

Answer 4

The study of how groups of individuals make decisions about the allocation of scarce resources

Question 5

Theory or Model

Answer 5

A hypothesis that if capable of refutation by empirical evidence

Question 6

Theory

Answer 6

Expressed in looser terms than a model

Question 7

Model

Answer 7

Often expressed in mathematical terms or diagrams

Question 8

Ceteris Paribus

Answer 8

“All things being equal”

The assumption that whilst the effects of the change of one variable are being investigated, all other variables are kept constant

Question 9

Positive Economics

Answer 9

The scientific/ objective study of the allocation of resources

Question 10

Positive statements

Answer 10

Can be supported/refuted by evidence

Question 11

Normative Economics

Answer 11

The study and presentation of policy prescriptions, involving value judgements about the way scarce resources are allocated

Question 12

Normative statements

Answer 12

Can’t be supported nor refuted by empirical evidence because it is a value judgement

Question 13

Basic Economic Problem

Answer 13

Resources have to be allocated between competing uses because wants are infinite whilst resources are scarce

Question 14

Scarce resources

Answer 14

A relative concept because they’re scarce in relation to the demand placed upon them

Question 15

Renewable resources

Answer 15

A resource of economic value that can be replaced or replenished on a level equal to consumption

Question 16

Non-Renewable Resources

Answer 16

A resource of economic value that can’t be readily replaced by natural means on a level equal to consumption

Question 17

Opportunity Cost

Answer 17

The benefits forgone of the next best alternative

Question 18

Free goods

Answer 18

Unlimited in supply therefore have no opportunity cost

Question 19

Factors of Production

Answer 19

Inputs of production process

Question 20

Economic goods

Answer 20

Are scarce because the demand placed upon them is greater than the quantity of it
therefore have an opportunity cost

Question 21

Define Economic agents

Answer 21

Entities that engage in economic activity

Question 22

What are 4 examples of economic agents

Answer 22

1. Individuals
2. Firms
3. Governments
4. International agents

Question 23

What is a rational economic agent?

Answer 23

Makes best choice to allocation of resources based on their priorities

Question 24

How do consumers allocate resources?

Answer 24

Choose how to spend limited income based on greatest level of satisfaction

Question 25

How do producers allocate resources?

Answer 25

Choose how to use resources based on profit

Question 26

How do governments allocate resources?

Answer 26

Choose how to spend limited tax revenues based on maximising social welfare

Question 27

What are 4 FoPs?

Answer 27

1. Land (raw materials/ minerals/ produce of sea) -> owners receive rent or money from sale) 2. Labour (productive human effort can be physical/mental/paid/unpaid) -> labourers receive wages 3. Capital (stock of manufactured resources used in production of goods/services) -> owners receive interest 4. Entrepreneurship (willingness and ability to seek out profitable opportunities for production and take risks to exploit them) -> successful entrepreneurs earn a profit from their activities)