economic methodology and the economic problem

Question 1

what is a want

Answer 1

something that is desired but not essential

Question 2

what is a need

Answer 2

something that is necessary for survival

Question 3

what is effective demand

Answer 3

demand backed by the ability to purchas

Question 4

what is the economic problem

Answer 4

resources are scarce but wants are infinite and so there are trade offs which result in opportunity costs when deciding the allocation of these finite resources

Question 5

what is opportunity cost

Answer 5

loss of the next best alternative

Question 6

whats the difference between micro and macro economics

Answer 6

microeconomics is the branch of economics which studies individual markets and firms whereas macroeconomics studies the economy as a whole

Question 7

what is a positive statement

Answer 7

one that can be tested against the facts and is falsifiable. it is objective and measurable

Question 8

what is a normative statement

Answer 8

one that contains a value judgement so cannot be tested and is based on what ought to be rather than what is or isn’t

Question 9

what do each economic agents aim to maximise

Answer 9

consumers- total utility
govt- social welfare
producers- profit
workers- wages and benefits from work

Question 10

what is a ppf curve

Answer 10

a diagram showing the capacity of a firm with a set amount of resources time and technology. shows the maximum combination of two goods that can be produced. illustrates opportunity cots

Question 11

why is the ppf curve usually curved

Answer 11

the law of diminishing returns

Question 12

what does a straight ppf curve mean

Answer 12

opportunity costs is constant because the resources are equally efficent for producing both goods

Question 13

what is the law of diminishing returns

Answer 13

its that there comes a point where the extra output of consumer goods diminishes despite more factors of production being allocated towards it

Question 14

what do the inwards and outwards shifts mean

Answer 14

rightwards shift means that capacity has increased and leftwards shift means capacity has decreased

Question 15

what do the points on a ppf curve mean

Answer 15

inside the curve is under/below capacity. outside the curve is unattainable and on the curve is productive effeciency where all resources are fully employed

Question 16

what causes an outwards shift

Answer 16

means capacity has increased so new/ improved technology, increased supply of labour, higher productivity, more minerals and raw materials, improved human working capital through education and training

Question 17

what causes an inwards shift

Answer 17

emigration, war, disease, disaster

Question 18

where is the opportunity cost greater

Question 19

what is a non parallel shift

Answer 19

when a factor only increases capacity for the production of one of the goods

Question 20

what is consumer rationality

Answer 20

maximising their own welfare

Question 21

what is total utility

Answer 21

the total satisfaction from purchasing a good

Question 22

marginal utility is

Answer 22

the change in total utility when consuming an extra unit of product

Question 23

what is the law of marginal utility

Answer 23

law of marginal utility is that there comes a point when consumption increases but utility begins to fall

Question 24

what is imperfect information

Answer 24

when there is misunderstood, inaccurate or incomplete data

Question 25

what is asymetrical information

Answer 25

when the buyers and sellers have different amounts of information, often the buyer knows less