Nature of economics

Question 1

Ceteris paribus

Answer 1

When the effect of a change in one variable is considered, it is assumed that all other variables are held constant

Question 2

Positive economic statements

Answer 2

Based on facts that can be proven or disproved

Question 3

Normative economic statements

Answer 3

Subjective statements based on value judgements and cannot be proved or disproved

Question 4

Scarcity

Answer 4

Exists because resources are finite whereas wants are infinite

Question 5

Factors of production

Answer 5

Land, labour, capital and enterprise

Question 6

Renewable resources

Answer 6

Those whose stock levels can be maintained at a certain level

Question 7

Non renewable resources

Answer 7

Those which will eventually be completely depleted

Question 8

Opportunity cost

Answer 8

Next best alternative that is forgone when a choice is made

Question 9

Economic goods

Answer 9

Created from resources that are limited in supply and so are scarce- they demand a price

Question 10

Free goods

Answer 10

Unlimited in supply- consumption by one person does not limit consumption by others so the opportunity cost is zero

Question 11

PPF

Answer 11

Shows maximum potential output of an economy when all resources are fully employed (efficiently)

Question 12

Economic growth

Answer 12

Increase in productive capacity of economy indicating an increase in real output

Question 13

Economic decline

Answer 13

Decrease in productive capacity of economy indicating a decrease in real output