The Economic Problem (M)

• Define 'ceteris paribus'

  'All other things remain equal
• Explain the significance of the term 'ceteris paribus'

  Used when looking at the relationship between two factors.

  
  

  Economists assume that only these two factors change and all other factors remain the same.
• What is a normative statement?


  Subjective statements that contain peoples opinions
• What is a positive statement?


  Objective statements that can be tested
• What is the basic economic problem?

  Scarcity (unlimited wants and limited resources)
• What are the four factors of production?


  — Land (Natural Resources)

  — Labour (Work done by people)

  — Capital (Equipment)

  — Enterprise (Willingness to take risks)
• What is the difference between renewable and non-renewable resources?


  Renewable can be used over and over and does not deplete whereas non-renewable resources are not quickly restored and will eventually run out
• What is opportunity cost?

  the value of the next best alternative
• What is the significance of opportunity cost to consumers and governments?

  — Consumers use opportunity cost to choose what to spend their income on.

  — Governments use opportunity cost to look the lost value to society of the policies they choose not to implement.