1. The Economic Problem Flashcards
What is the Economic Problem
Having unlimited wants/needs, but limited resources with which to satisfy those needs.
What assumptions to economist make when studying human behaviour?
Economist assume humans make rational decisions.
Rational behaviour - each individual makes logical decision based on weighting personal benefits of each action, then selects the most attractive action based on personal wants/needs.
Rational behaviour may not necessarily be ethical.
Define Economic Resources
The basic items or input used for production
- Natural resources
- Capital resources
- Human resources
Give examples of Economic Resources
- Natural resources: land, water, sun, minerals, forests
- Capital resources: processed materials, buildings,
equipment (Property, Plant, Equipment) - Human resources: labour, entrepreneurship
Define entrepreneurship
Human initiative, risk-taking, and innovation necessary for production
Distinguish between Microeconomics and Macroeconomics
Microeconomics - focusses on behaviour of individuals in markets
Macroeconomics - focusses on a wider view of the
economy studying economic sectors.
What are Economic Models and why are they useful?
Economist use economic models to help understand
economic behaviour.
Economic models are generalization using simplifying
assumptions to reduce complexity of human behaviour.
What is Positive Economics?
Positive Economics: Also known as Descriptive
economics.
Based on economic facts.
Aims to describe why the economy behaves the way it does.
What is Normative Economics?
Normative Economics - Also known as Policy economics.
Based on opinions and value-judgements.
Aims to describe how the economy is supposed to behave.
How do people make Economic choices?
By comparing each actions costs and benefits
of using a limited resource.
What are the 2 main factors affecting Economic choices?
Utility and Cost
Define Economic Utility
Economist assume that whenever you make
a decision - you are maximizing your own
utility.
Utility - the satisfaction or pleasure you derive from an action.
What is the Self-Interest Motive?
An individual is primarily focussed on his/her own welfare.
What is Opportunity Cost?
Instead of measuring Economic Cost in terms of money, economist use a concept based on trade-offs ie. Opportunity Cost.
What is the Production Possibility Schedule and Curve?
Production Possibility Schedule - a table/matrix
of possible output combinations for an economy.
Production Possibility Curve - a graph illustrating the output combinations for an economy.
Highlights the role of Scarcity of Economic resources.
The curve is a boundary between all possible output combinations that can be reached as well as that which is unattainable.
All the points inside the curve represent combinations where resources are not being fully utilized.
