Methodology and the Economic Problem

Question 1

Positive statement

Answer 1

An objective statement that can be tested against the facts to be declared either true or false.

Question 2

Normative statement

Answer 2

A subjective opinion, or value judgement, that cannot be

declared either true or false.

Question 3

Need

Answer 3

Something which humans need to survive.

Question 4

Want

Answer 4

Something which people feel improves their standard of living but is not required for survival.

Question 5

Economic welfare

Answer 5

The standard of living or general wellbeing of people in society.

Question 6

Factors of production.

Answer 6

A country’s productive economic resources divided into capital, enterprise, land and labour.

Question 7

Basic economic problem

Answer 7

Scarce economic resources compared with society’s unlimited wants.

Question 8

Opportunity cost

Answer 8

The cost of the next best alternative that you give up when you have to make a choice.

Question 9

Economic good

Answer 9

A good that has an opportunity cost in consumption because is uses up scarce resources.

Question 10

Feee good

Answer 10

A good that does not have an opportunity cost in consumption because it does not use up scarce resources.

Question 11

Production possibility curve (PPC)

Answer 11

A diagram which shows the maximum possible output combinations of two goods in economy, assuming full employment of efficient resources.

Question 12

Economic growth

Answer 12

An increase in the productive capacity of an economy over time.

Question 13

Productive efficiency

Answer 13

When maximum output is produced from the available factors of production and when it is not possible to produce more of one good or service without producing less of another.

Question 14

Allocative efficiency

Answer 14

When an economy’s factors of production are used to produce the combination of goods and services that maximises society’s welfare.