Economics

• What is the process of developing models in economics called?

  Thinking like an economist
• Why do economists use assumptions in their models?

  To simplify analysis and understand relationships
• What does the ceteris paribus assumption imply?

  All other factors are held constant
• What is a key criticism of economic models?

  They may not be sufficiently realistic
• What are assumptions in economics?

  Initial conditions for analysis
• What is the neo-classical approach in economics?

  It is based on rational decision-making assumptions
• What do neo-classical economists assume about people?

  People aim to maximize their utility
• How do neo-classical economists view decision-making?

  People act independently of each other
• What is a positive statement in economics?

  An objective statement that can be tested
• What distinguishes normative statements from positive statements?

  Normative statements carry value judgments
• How do value judgments influence economic decisions?

  They vary across individuals and entities
• What is the basic economic problem?

  Scarcity and choice
• What does scarcity mean in economics?

  Finite resources against unlimited wants
• What must societies decide due to scarcity?

  What goods and services to produce
• What is opportunity cost?

  The cost of the alternative given up
• What are the four main categories of factors of production?

  Land, labour, capital, enterprise
• What is the role of capital in production?

  Goods used to supply other products
• What is automation in production?

  Using technology to replace human labour
• What are non-renewable resources?

  Finite resources that cannot be replenished
• What are renewable resources?

  Resources that can be replenished naturally
• What does the production possibility frontier (PPF) depict?

  The maximum potential output combinations of two goods
• Why is the PPF typically concave to the origin?

  Due to diminishing returns as resources are reallocated
• What does a shift in the PPF indicate?

  Changes in the economy's productive capacity
• What is the difference between capital and consumer goods?

  Capital goods are used to produce consumer goods
• What is the opportunity cost of government spending on health services?

  Less money available for education or transport
• What is the opportunity cost of investing in capital goods?

  Production of consumer goods is forgone
• What does the term 'capital-labour substitution' refer to?

  Replacing human labour with machinery
• What is the opportunity cost of using farmland for bio-fuel?

  Less wheat available for food production
• What is the significance of the PPF in economics?

  It illustrates trade-offs and opportunity costs
• What does a movement along the PPF indicate?

  Reallocation of resources between goods
• What does a shift outward of the PPF represent?

  Economic growth and increased capacity
• What does a shift inward of the PPF indicate?

  Economic decline and reduced capacity
• What is the relationship between factors of production and economic output?

  Factors of production determine the level of output
• How do economists view the allocation of resources?

  It should be efficient to maximize output
• What is the role of entrepreneurship in production?

  To organize factors and take risks
• What is the significance of opportunity costs in decision-making?

  They highlight trade-offs in resource allocation
• What is the impact of automation on labour?

  It reduces the need for human workers
• How does the concept of scarcity affect consumer choices?

  It forces consumers to make trade-offs
• What is the relationship between renewable resources and sustainability?

  Renewable resources can be sustained over time
• What is the significance of the PPF's shape?

  It reflects diminishing returns in production