1. Economic methodology and the economic problem - micro Flashcards
Positive statement
A statement of fact that cab be tested scientifically to see if it is correct or incorrect
E.g. words such as ‘would’ ‘is’ etc
Normative statement
A statement that includes a value judgement and cannot be refuted just by looking at the evidence.
E.g. uses words such as ‘ought’ ‘should’ ‘better/worse’ etc
Value judgement
Whether something is desirable or not
Government ministers make value-judgements when deciding on economic policies
Need
Something that is necessary for human survival, such as food, clothing, warmth, or shelter.
Want
Something that is desirable, such as fashionable clothing, but is not necessary for human survival.
Economic welfare
The economic well-being of an individual, a group within society, or an economy.
Economic system
The set of institutions within which a community decides what, how and for whom to produce.
Market economy
An economy in which goods and services are purchased through the price mechanism in a system of markets.
Command economy (also known as planned economy)
An economy in which government officials or planners allocate economic resources to firms and other productive enterprises.
Mixed economy
An economy that contains both a large market sector and a large non-market sector in which the planning mechanism operates.
E.g. countries in Western Europe such as UK
Production
Converts inputs or factor services into outputs of goods and services.
Capital good (producer good)
A good which is used in the production of other goods or services
E.g. equipment, machinery, technology
Consumer good
A good which is consumed by individuals or households to satisfy their needs or wants.
Factors of production
Inputs into the production process: land, labour, capital and enterprise.
Renewable resource
A resource, such as timber, that with careful management can be renewed as it is used.
Non-renewable resource
(Finite resource)
A resource, such as oil, which is scarce and runs out as it is used.
Fundamental economic problem
How best to make decisions about the allocation of scarce of resources among competing uses so as to improve and maximise human happiness and welfare.
Scarcity
People have unlimited wants but resources to meet these wants are limited.
People would like to consume more goods and services than the economy is able to produce with its limited resources.
Opportunity cost
The cost of giving up the next best alternative.
Production possibility frontier (PPF)
A curve depicting the various combinations of two products that can be produced when all the available resources are fully and efficiently employed.
Technical progress
New and better ways of making goods and new techniques for producing more output from scarce resources.
Macroeconomic PPF showing econ growth
Shows economy as a whole: can be used to demonstrate economic growth
Long-run econ growth = movement from point inside frontier to on frontier
Short-run Econ growth = outward movement of frontier
Economic growth
The increase in the potential level of real output the economy can produce over a period of time.
Macroeconomic PPF showing employment
All points ON PPF show full employment of available resources
Any points INSIDE frontier is where unemployment occurs
Full employment
When all who are able and willing to work are employed
Unemployment
When not all of those who are able and willing to work are employed.
Microeconomic PPF
PPF showing combination of two products within a firm
Resource allocation
Process through which the available factors of production are assigned to produce different goods and services
Productive efficiency
For the economy: occurs when it is impossible to produce more than one good without producing less of another.
For a single firm: occurs when average total cost of production is minimised.
