Principles Of Economics

Question 1

What is the basic Economic Problem?

Answer 1

The basic economic problem is that there are infinite wants and finite resources.

Resources are scarce in relation to wants.

Choices need to be made about how to allocate resources among
competing uses: What to produce? How to produce? For whom to
produce?

Question 2

What is Opportunity Cost?

Answer 2

Opportunity cost is the value of the next best alternative foregone (given up) when a choice is made

Question 3

What are the 4 Factors of Production?

Answer 3

Land
- natural physical resources

Labour
- human input (workers)

Capital
- man-made resources, eg machinery

Enterprise/Entrepreneurship
- the ability and willingness to
organize, coordinate, and take
risks in the production process

Question 4

What are the rewards to the Factor of Productions?

Answer 4

Land = rent

Labour = wages

Capital = interest

Enterprise = profit

Question 5

What do Rational Economic Agents aim to maximise for Consumers?

Answer 5

Total utility

Question 6

What do Rational Economic Agents aim to maximise for Workers?

Answer 6

Wages and benefits from work

Question 7

What do Rational Economic Agents aim to maximise for Producers?

Answer 7

Profit

Question 8

What do Rational Economic Agents aim to maximise for Government?

Answer 8

Social Welfare

Question 9

What is a Positive Statement?

Answer 9

Positive statements are based
on objective facts, and they can be proven or disproven, without making any value judgements.

Example: A rise in the minimum wage decreases employment.

Question 10

What is a Normative Statement?

Answer 10

Normative statements are subjective statements - i.e.
they carry value judgements.

Example: The government should
increase spending on healthcare