Economic methodology and the economic problem

• What is allocative efficiency?

  Maximizing economic welfare through resource use
• How does the allocative price function work?

  It reallocates resources from excess supply to demand
• What are capital goods?


  Producer goods used in production
• What is the definition of ceteris paribus?

  All other things being held constant
• What does choice refer to in economics?

  Selecting among multiple alternatives
• What are consumer goods?

  Goods consumed to satisfy needs and wants
• What is economic welfare?

  Economic satisfaction of individuals or groups
• What is enterprise in economics?

  Ability to utilize production factors effectively
• What are the factors of production?

  Inputs like land, labour, capital, and enterprise
• What is a finite resource?

  Non-renewable resource that becomes scarce
• What is the fundamental economic problem?

  Allocating scarce resources to maximize welfare
• What does imperfect information mean?

  Individuals lack information for optimal decisions
• How do prices create incentives?

  They adjust economic transactions accordingly
• What is infrastructure in economics?

  Facilities required for an economy to function
• What does labour refer to?

  Workers with human capital
• What is land in economic terms?

  Natural materials and space for capital
• What is a need in economics?

  Something necessary for human survival
• What is a normative statement?

  Includes value judgments, not easily proven
• What is opportunity cost?

  Loss of alternatives when choosing one option
• What does Pareto efficiency mean?

  One agent's gain requires another's loss
• What is a positive statement?

  Includes facts that can be proven
• What is a production possibility frontier?

  Curve showing combinations of two products
• What is the rationing price function?

  Prices rise to ration demand for goods
• What is a renewable resource?

  Restorable resource that can be replenished
• What does scarcity refer to?

  Limited resources against infinite wants
• How do prices signal information?

  They influence decisions of buyers and sellers
• What is trade in economics?

  Buying and selling of goods and services
• What are value judgments?

  Subjective statements based on opinion
• What is a want in economics?

  Something desirable but not necessary