Economic Methodology And The Economic Problem

Question 1

Why is economics considered to be a social science?

Answer 1

As it looks at the behaviour of humans and their use of scarce resources

Question 2

What does ceteris paribus stand for

Answer 2

All other things remain equal

Question 3

What are the 2 kind of economic statements?

Answer 3

Positive
Or
Normative

Question 4

What is a positive statement? And give an example

Answer 4

Objective statements that can be tested by referring to the available evidence.
“A reduction in income will increase the amount of people shopping in pound shops”

Question 5

What is a normative statement? And give an example

Answer 5

Subjective statements which contain a value judgement (opinions)
“The use of fossil fuels should be taxed more highly that the use of renewable fuels”

Question 6

What are the 4 factors of production?

Answer 6

Land
Labour
Capital
Enterprise

Question 7

What are the 3 fundamental questions?

Answer 7

1) What to produce?
2) How to produce it?
3) Who to produce it for?

Question 8

What do PPFs show

Answer 8

The maximum possible output

The options that are available when you consider the production of just 2 types of goods or services

Question 9

If a point is situated on the PPF what does it show and what does it not show?

Answer 9

Shows the maximum possible output

But it may not be allocatively efficient because it might not reflect the production of goods that people want or need

Question 10

What is an opportunity cost

Answer 10

The next best thing that you’re forced to give up

The next best alternative that you give up in making that decision

Question 11

What shifts the PPF

Answer 11

Economic growth (increase in number of workers)

Question 12

What method could you use to allocate scarce resources

Answer 12

Markets

Question 13

What do mixed economies combine?

Answer 13

Free markets and government intervention

Question 14

Pros of a free market

Answer 14

Efficiency
Entrepreneurship
Choice

Question 15

Cons of a free market economy

Answer 15

Inequalities
Non-profitable goods may not be made
Monopolies

Question 16

Pros of a command economy

Answer 16

Maximise welfare
Low unemployment
Prevent monopolies

Question 17

Cons of a command economy

Answer 17

Poor decision making
Restricted choice
Lack of risk-taking and efficiency

Question 18

What type of economy has a public sector and a private sector?

Answer 18

A mixed economy
(Private sector = businesses that are privately owned)
(Public sector = government)

Question 19

What are economic agents assumed to be

Answer 19

Utility maximisers

Question 20

What is the different between marginal utility and total utility

Answer 20

Marginal utility is the benefit gained from consuming one additional unit of a good. Whereas total utility is the overall benefit gained from consuming a good

Question 21

State the law of diminishing returns

Answer 21

For each additional unit of a good that’s consumed, the marginal utility gained decreases

Question 22

Where will a rational consumer choose to consume until

Answer 22

Marginal utility = price

Question 23

What are the economic objectives for producers?

Answer 23

Vary

1) maximise profits
2) maximise the firms market share
3) maximise sales
4) ethical objectives

Question 24

What are the economic objectives of consumers

Answer 24

Maximise their utility

Question 25

What are the economic objectives of the government?

Answer 25

``` Economic growth Full employment Equilibrium in the balance of payments Low inflation Improved living standards ```

Question 26

What are the key assumptions used in traditional economic theory

Answer 26

Economic agents are utility maximisers | Economic agents are rational

Question 27

What do behavioural economists challenge?

Answer 27

The traditional economic theory assumptions because they're not realistic

Question 28

Why do consumers not act rationally

Answer 28

There are a lot of restrictions on people's ability to make rational decisions: - the time available to make a decision is limited - not all the information is available, and the info that's available may not be correct - people might not be able to process and evaluate the vast amounts of data

Question 29

Case study :- Cases of obesity in British people have been increasing steadily for 25 years

Answer 29

The explosion in obesity rates in developing countries can lead to a move away from manual labour to more office-based work