1) Economic Methodology & The Economic Problem Flashcards
What is a normative statement?
A statement that includes a value judgement and cannot be refuted by just looking at the evidence.
What is a positive statement?
A statement of fact that can be scientifically tested to see if it is correct or incorrect.
What is the central purpose of economic activity?
To satisfy peoples needs and wants.
What is a need?
Something that is necessary for human survival ( e.g food, clothing, warmth, shelter)
What is a want?
Something that is desirable but not necessary for human survival.
What is economic welfare?
The economic well-being of an individual, a group within a society, or an economy.
This is improved by satisfying peoples wants and needs.
What is a market economy?
An economy in which goods & services are purchased through the price mechanism in a system of markets.
The US is closer to a market economy with minimal government intervention
What is a mixed economy?
An economy that contains a large non market sector in which the planning mechanism operates and a large market sector.
Common in developed economies like the UK. For example essential resources are provided by the government ( healthcare - NHS, state schools) but most industries operate in the private sector.
What is a planned (command) economy?
An economy in which government officials/planners allocate economic resources to firms and other productive enterprises.
North Korea operates as a planned economy with state control over resources.
What is production?
It converts inputs into outputs of goods and services.
What is a capital (producer) good?
A good which is used in the production of other goods/services.
What is a consumer good?
A good which is consumed by individuals or households to satisfy their needs/wants.
What are the 4 factors of production?
They are inputs into the production process:
- land
- labour
- capital
- enterprise
What is the role of entrepreneurs?
They decide how much of the factors of production to produce.
They are financial risk takers and decision markers.
Profit is their reward.
What is a renewable resource?
A resource that with careful management can be renewed as it is used.
(E.g solar power, fish, timber)
What is a non-renewable (finite) resource?
A recluse that is farce and run out as it is used.
(E.g coal)
What is the fundamental economic problem?
How to best make decisions about the allocation of scarce resources about the allocation of scarce resources among competing uses, so as to improve and maximise human happiness and welfare
What causes scarcity?
Results from the fact that people have unlimited wants but the resources to meet these wants are limited.
What is opportunity cost?
The cost of giving up the next best alternative.
Every choice in economic involves an opportunity cost.
For example the government allocating more resources to the NHS could mean less funding toward education (the cost).
What is productive efficiency?
Occurs when it is impossible to produce one more of a good without producing less of another. This is all points on the PPF curve.
AC = MC
Points inside of the PPF are productively inefficient.
Points outside of the PPF are unattainable
It occurs on the lowest point of the AC/ATC curve. The average total cost of production is minimised
Shifts in the PPF?
The PPF can shift inwards or outward due to changes in productive capacity.
It can shift unevenly if the increase in productive capacity favours one product over another.
For example natural disasters in like earthquakes in Turkey reduced the economies productive capacity, shifting the PPF inwards
Movement along the PPF?
Shows a change in the allocation of resources.
E.g COVID 19 led to a shift in the PPF as resources were directed towards healthcare, reducing output in other sectors like hospitality and tourism
Declining opportunity cost PPF?
The curve is convex.
