Microeconomics 1. Economic methodology and the economic problem

Question 1

What is a positive statement?

Answer 1

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

Question 2

What is a normative statement?

Answer 2

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

Question 3

What is Economic methodology?

Answer 3

Involves the application of tested economic theories to explain real-world economic behaviour

Question 4

What is a value judgement?

Answer 4

Whether something is desirable or not

Question 5

What do government ministers do?

Answer 5

Make value-based judgements when deciding on economic policies

Question 6

What is the conclusion of government policy decisions?

Answer 6

There will always be winners who gain and losers who suffer as a result of it

Question 7

What is a need?

Answer 7

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

Question 8

What is a want?

Answer 8

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

Question 9

What is economic welfare?

Answer 9

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

Question 10

What is an economic system?

Answer 10

The set of institutions within which a community decides what, how and for whom to produce

Question 11

What is a market economy?

Answer 11

An economy in which goods and services are purchased through the price mechanism in a system of markets

Question 12

What is a Command economy (Planned economy)?

Answer 12

An economy in which government officials or planners allocate economic resources to firms and other productive enterprises

Question 13

What is a mixed economy?

Answer 13

An economy that contains both a large market sector and a large non-market sector in which the planning mechanism operates

Question 14

What is production?

Answer 14

Converts inputs or factor services into outputs of goods and services

Question 15

What is a capital good (producer good)?

Answer 15

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

Question 16

What is a consumer good?

Answer 16

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

Question 17

What are the factors of production?

Answer 17

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

Question 18

What is a renewable resource?

Answer 18

A resource, such as timber, that with careful management can be renewed as it is used

Question 19

What is a non-renewable resource (finite resource)?

Answer 19

A resource, such as oil, which is scarce and runs out as it is used

Question 20

What is an important part of improving economic welfare?

Answer 20

Increased consumption of material goods

Question 21

What is the entrepreneur?

Answer 21

The factor of production that decides what to produce, how to produce and for whom to produce

Question 22

What do environmental resources comprise?

Answer 22

All the natural resources that are used or can be used in the economic system

Question 23

What is the fundamental economic problem?

Answer 23

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 24

What is scarcity?

Answer 24

Results from the fact that people have unlimited wants but resources 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 25

What is a choice?

Answer 25

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

Question 26

What is opportunity cost?

Answer 26

The cost of giving up the next best alternative

Question 27

What is the production possibility frontier?

Answer 27

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 28

What is technical progress?

Answer 28

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

Question 29

What is economic growth?

Answer 29

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

Question 30

What is full employment?

Answer 30

When all who are able and willing to work are employed

Question 31

What is unemployment?

Answer 31

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

Question 32

What is resource allocation?

Answer 32

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

Question 33

What is productive efficiency?

Answer 33

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

Question 34

What performs the allocation task in a market economy?

Answer 34

The price mechanism

Question 35

What is the UK economy?

Answer 35

A mixed economy, containing a mix of market and non-market sectors, and private and public sectors