Econ 1

What is an assumption in Economics?

Something economists accept as true in a model to simplify reality and make analysis easier

Define ceteris paribus

All other factors are held constant when analysing the effect of one variable

State the characteristics of a positive statement

Based on objective facts and data, does not include value judgements, can be tested or proven true or false

State the characteristics of a normative statement

Based on value judgements, cannot be tested or proven true or false, often includes words such as should or ought

Explain the economic problem in one sentence

Resources are scarce but wants are unlimited so choices must be made

Define a renewable resource

A resource that can be replenished naturally over time

Define a non-renewable resource

A finite resource that will eventually run out

Define opportunity cost

The next best alternative foregone when a choice is made

Define a production possibility frontier (PPF)

A curve showing the maximum possible combinations of two goods an economy can produce using all resources efficiently

Where is efficiency shown on a PPF

On the curve

Where is inefficiency shown on a PPF

Inside the curve

Where is unobtainable shown on a PPF

Outside the curve

What causes a PPF to shift outwards

Increase in quantity or quality of resources technological advances or discovery of new resources

Explain the link between diminishing marginal returns and a curved PPF

Resources become less suited to producing one good leading to increasing opportunity cost and a bowed outwards curve

Why is there no opportunity cost inside the PPF

Resources are underused so more of one good can be produced without sacrificing another

Define a capital good

A good used to produce other goods and services

Define a consumer good

A good used to directly satisfy wants