Unit 1: Economic Methology

Question 1

Define positive statements:

Answer 1

Statements that can be tested by referring to available evidence.

Question 2

Define normative statements:

Answer 2

Subjective statements which contain a value judgment (opinions).

Question 3

Name the 4 factors of production:

Answer 3

Labour, capital, enterprise, land

Question 4

Define economic welfare:

Answer 4

Economic well-being of an individual, a group within society, or an economy.

Question 4

Production definition:

Answer 4

A process or set of processes that converts inputs into outputs of goods.

Question 5

Social science definition:

Answer 5

The branch of science that studies society and the relationships of individuals within a society.

Question 6

Value judgment definition:

Answer 6

Judging whether something is desirable or not.

Question 7

Difference between a need and a want:

Answer 7

A need is something that is necessary for human survival but a want is something that is only desirable.

Question 8

Define factors of production:

Answer 8

The inputs into the production process.

Question 9

Capital good definition:

Answer 9

A good that is used in production of other goods and services.

Question 10

Scarce resources definition:

Answer 10

Resources that are too limited to meet the wants of the consumers for that good.

Question 11

On a production possibility frontier diagram, what is on the x axis and y axis?

Answer 11

X axis: Quantity of one good or service being produced.
Y axis: Quantity of another good or service being produced.
Make sure to put ‘quantity’ or ‘q’ in front of the good or service named.

Question 12

Define a PPB:

Answer 12

A PPB shows the maximum possible combinations of goods that can be produced by an economy using current available resources.

Question 13

On a PPF, if an economy is on the boundary, what does this represent?

Answer 13

The economy using full capacity output (Resources are fully and efficiently utilised) and productive efficiency.

Question 14

On a PPF, if an economy is within a boundary, what does this represent?

Answer 14

Unemployment or inefficiency

Question 15

On a PPF, if an economy is outside the boundary, what does this represent?

Answer 15

Impossible output (at the current time)

Question 16

Define productive efficiency:

Answer 16

The maximum output is made from any input or a certain output is made with minimum inputs.

Question 17

Why does the PPB move outwards (give some examples)?

Answer 17

Due to a change in the quantity or quality of resources or an improvement in technology, increasing productive potential.
Immigration, more highly qualified workers, more machines or discovery of new raw materials.

Question 18

Give some examples of what can shift the PPB towards the origin:

Answer 18

Emigration, war, reduced entrepreneurism, population decrease from deaths, resources running out

Question 19

If there is a shift in the PPF boundary, how do you present that on the PPF?

Answer 19

Label previous PPF: ‘PPF1’.
Label next PPF: ‘PPF2’.
Make sure to add an arrow showing the direction the boundary moved as well.

Question 20

Formula for calculating percentage:

Answer 20

((New value- original value) ➗ original value) X 100 = %

Question 21

Define allocation of resources:

Answer 21

How scarce resources (‘factors of production’) are distributed among producers to determine what is made and who gets these items.

Question 22

Define capital:

Answer 22

machinery, equipment and buildings that can be used in the production process.

Question 23

Define economic activity:

Answer 23

Any action that produces goods or services.

Question 24

Define economic resources:

Answer 24

Inputs necessary for production i.e. the factors of production.

Question 25

Define economic welfare:

Answer 25

Means well-being or satisfaction, and is affected by a range of material and non-material items such as income, quantity of goods, the environment, health, leisure etc.

Question 26

Define an entrepreneur (give example):

Answer 26

The human organiser and initiator of a new business who takes risks to gain profit. E.g. Larry Page of Google.

Question 27

Define an enterprise:

Answer 27

The initiative to undertake a project or business that involves risk.

Question 28

Define factor incomes (with example):

Answer 28

Rewards to the four factors of production e.g. rent is paid for land.

Question 29

Define factors of production:

Answer 29

Inputs or resources necessary for production i.e. capital, entrepreneurial skill, land and labour.

Question 30

Define a finite resource (with example):

Answer 30

A raw material that has limited supply and is expected to run out in time e.g. oil.

Question 31

Define free market economy:

Answer 31

An economy where there is little government action involvement in providing goods and services.

Question 32

Define full capacity output:

Answer 32

The maximum that can be produced by a nation (or firm).

Question 33

What is the fundamental economic problem?

Answer 33

. There are infinite wants but finite resources so people cannot have everything they want. There is scarcity and prices will ration who gets the available supply and choke off excess demand.

Question 34

Define goods (with example):

Answer 34

Physical, tangible items e.g. cars

Question 35

Define human capital:

Answer 35

The skills and training of workers. Investment in training raises human capital and the productivity of workers.

Question 36

Define hypothesis:

Answer 36

A proposed explanation made on the basis of limited evidence as a starting point for further investigation.

Question 37

Explain ‘infinite wants’:

Answer 37

People have unlimited desires and never have all the goods and services they wish for.