1.1 Flashcards
What is thinking like an economist?
Process of developing models in econ, inc need to make assumptions, use of ceteris paribus
Thinking like an economist involves the process of developing models in economics, which includes the need to make assumptions and the use of ceteris paribus.
What is ceteris paribus?
‘Other things being equal’
Mean that when the effect of a change in one variable is considered, its assumed that all other valuables stay the same.
What assumptions do you have to make with ceteris paribus?
Have to make assumptions that outside things don’t work change
Have to make assumptions that outside things don’t work change
What are positive statements?
Objective statements that can be tested, amended or rejected by referring to the available evidence.
words included: what was, is, will be.
uses data eg GDP ect
What are normative statements?
They are Subjective statements based on value judgements and can’t be proved/disproved
Uses opinion phrases: should, must etc. Relate to what might be good/bad unfair/fair
What are economists interested in when it comes to economic decision making?
Economists are interested in both positive and normative statements
Decision makers can make a normative statement which is based on positive statements
Why does scarcity exist
because recourses are finite whereas wants are infinite
what is a renewable source
Something that replenishes itself
what is a non-renewable source
something that can be depleted
what is opportunity cost
the next best alternative that is foregone when a choice is made
(not ab money, but perhaps what the could’ve been used for)
what are free goods
unlimited in supply e.g sunlight
-opportunity cost of consuming free goods is 0
what are economic goods
created from resources limited in supply -so they command a price
What to produce & how much?
relates to the different types a goods/services, the economy should produce and how much of each
Example: A country may choose to produce more consumer goods than capital goods.
How should the goods / services be produced ?
Production may be labour intensive—> high proportion of labour used relative to capital OR capital intensive —> high proportion of capital relative to labour
Example: Some industries, like agriculture, are more labor-intensive, while others, like technology, are more capital-intensive.
How should the goods be allocated ?
concerned with the distribution of goods produced and will affect the degree of equality in society
Example: The way goods are allocated can impact income inequality within a society.
what is the acronym for the factors of production
Capital
Enterprise
Labour
Land
what does a PPF show
the max potential output of 2 goods when resources are fully and efficiently allocated
what can a PFF illustrate
opportunity cost
efficiency
economic growth
what do the points on a PPF graph mean
AB (on the curve)implies all resources are fully and efficiently employed —>all points show the max productive potential of an economy and that resources are used efficiently
A (top of curve) produces max but producing more capital than consumer
B(bottom of curve) producing max but producing more consumer than capital
D(inside the curve) indicates that there’s unemployed resources in the economy and resources aren’t being allocated effortlessly e.g workers unemployed or machinery unused
C (outside curve) unachievable (not enough resources)
Which way would the curve move if there was economic growth
rightward shift
which way would the curve move if there was economic decline
leftward shift
why would there be a movement along a PPF
changes in the combination of the two goods being produced e.g capital goods and consumer goods
—> might occur if economy devoted more resources to production of capital goods and fewer to the production of consumer goods —> involve opportunity cost
what is marginal analysis
is concerned with the impact of additions or subtractions from the current situation
the rational decision maker will only decide on an option if the marginal benefit exceeds the marginal cost
why does PPF concave
as one more good is produced, an inc amount of the other is foregone - OC is rising marginal cost
this is bc not all resources are as efficient as others in the production of both goods
