1.1 Nature of Economics

1.1.1 What is economics the study of?

The scientific study of societies and social interaction (the scientific study of people)

1.1.1 What is Ceteris Paribus?

All other variables being held constant

1.1.1 Why are economic models and theories hard to test?

There being many different factors that can change within a model/ experiment. Economists therefore use the ‘ceteris paribus’ assumption.

1.1.1 Why do we assume in Economics?

Assumptions provide a way for economists to simplify economic processes and make them easier to study and understand.

1.1.2 What is Positive Statement?

A statement that is objective and fact-based and can be tested using evidence to determine whether it is true or false

1.1.2 What is Normative Statement?

A statement that is based on value judgement or opinion and cannot be tested

1.1.3 What is the economic problem?

Economic problem (Problem of Scarcity) – the idea that we (individuals, households, firms, Governments) have infinite wants but scarce resources

1.1.3 What is the difference between renewable and non-renewable resources?

Renewable resources can be naturally replenished over time, while non-renewable resources are finite and cannot be replaced once depleted

1.1.3 resources that can replenish over time e.g. sunlight, wind and waves. Is this renewable or non-renewable?

Renewable resources

1.1.3 resources that will not replenish after use (they will run out), e.g. coal, oil and natural gas. Is this renewable or non-renewable resources?

Non-renewable resources

1.1.3 What are the factors of production?

Capital
Enterprise
Land
Labour

1.1.3 What are capital factors of production?

Manufactured item used to aid production

1.1.3 What are Enterprise factors of production?

Individual or business who take the initiative to set up a business and employ different factors of production

1.1.3 What are Land factors of production?

Physical space and the natural resources in it

1.1.3 What are Labour factors of production?

Human workers who are involved in producing the good

1.1.3 Why is money not a factor of production?

Money cannot be used to produce anything, it can be used to buy factors of production and those factors are used to make things.

1.1.3 What is the importance of opportunity cost for an economic agent?

The concept of Opportunity Cost helps us to choose the best possible option among all the available options.

It helps us to use every possible resource tactfully, efficiently and hence, maximise economic profits.