Economic Methodology and the Economic Problem

Question 1

Scarcity

Answer 1

Where wants for a product (or factor of production) exceed the amount avaliable

Question 2

Factor of production

Answer 2

Productive resources; Land, labour, capital and enterprise.

Question 3

Capital

Answer 3

Man made aids to production, such as machinery or new factories.

Question 4

Enterprise

Answer 4

Risk taking role undertaken by owners of a business as they combine other factors of production in the pursuit of profit.

Question 5

Investment

Answer 5

Spending by firms on capital stock or repair of existing stock

Question 6

Depreciation

Answer 6

The rate at which capital loses value over time, due to wear and tear or technological obsolescence.

Question 7

Opportunity cost

Answer 7

The value of the next best option forgone.

Question 8

Production possibility frontier

Answer 8

The combinations of two goods which an economy is capable of producing, using all its resources in the most efficient way.

Question 9

Productive Efficiency

Answer 9

Where production of an economy occurs when all factors of production are fully utilised and are producing output with the minimum of factor inputs currently feasible.

Question 10

Positive statement

Answer 10

A statement which can be verified by real world data.

Inflation is at 2% in the U.K

Question 11

Normative Statement

Answer 11

Statement which cannot be verified by real world data and requires a value judgement.
(Inflation should be reduced)