1.1 Economic methodology Flashcards
What are needs
those things required that are essential to maintain survival
What are wants
those things that are desired but not essential to survive
What is an economic agent?
the individuals and firms that partake in economic activity, the demand for and supply of goods and services
what is economic welfare
the benefit gained by individuals, firms or society in the production of goods and services
What is a free market economy?
where firms decide what goods and services to produce with limited intervention from the government
What is the fundamental purpose of economic activity?
To satisfy need and wants
What are the 4 factors of production
Land, labour, enterprise and capital
What are factors of production?
the resources used by firms to produce goods and services
what is labour
includes all of the workforce in an economy
what is land?
all of the natural resources that come from the earth that are used in the production of goods and services
What is capital
the man-made aids that are used in the production process
what is enterprise?
the entrepreneur takes land, labour and capital and organises them in order to produce products that will be profitable
what is the fundamental economic problem?
scarcity and that it results from limited resources and unlimited wants
What is opportunity cost?
the benefit lost of the next best alternative when making a choice
What are trade-offs?
the range of alternatives we give up
what do Production Possibility diagrams illustrate?
the different features of the fundamental economic problem such as: resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth
What does a Production Possibility Curve show?
used to show the different combinations of output for two products
What do we know if point A is on the PPC
We are using a full use of resources
What does a point under the PPC show?
An unemployment of resources
When does a trade-off occur?
when an economic agent substitutes the production of one good or service for another.
What are investment goods?
those that produce a stream of income in the future
What are consumption goods
those that produce a stream of income today
What does a shift of the PPC to the right mean?
An increase in the productive capacity of the economy(greater output can be produced)
What causes economic growth(a shift of a PPC to the right)
Any increase in factor inputs(land, labour, capital and enterprise)
