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economics: micro AS > 1.1 Economic methodology and the economic problem > Flashcards

1.1 Economic methodology and the economic problem Flashcards

1
Q

Definition of economics

A

The study of how scarce resources are used to satisfy society’s unlimited wants

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2
Q

Why is economics a social science?

A

It applies scientific method to the study of human behaviour and economic decision making

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3
Q

What is a positive economic statement?

A

An objective statement that can be tested against facts to be declared either true or false

(‘will’ and ‘is’)

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4
Q

What is a normative economic statement?

A

A subjective opinion or value judgement, that cannot be tested against facts or declared either true or false

(‘should’)

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5
Q

Why can value judgements influence economic decision making?

A

They involve moral and political considerations as well as positive analysis

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6
Q

Definition of a need + example

A

Something that humans require to survive

eg. food, shelter

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7
Q

Definition of a want + example

A

Something that people feel improves their standard of living or economic welfare, but is not required for survival

eg. new car, TV, watch

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8
Q

Definition of ceteris paribus

A

All other things being equal

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9
Q

What is the purpose of economic activity?

A

To produce goods and services which satisfy consumer needs and wants

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10
Q

Definition of economic welfare

A

The standard of living or general well being of people in society

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11
Q

What leads to increased economic welfare?

A

Satisfying society’s needs and wants

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12
Q

What are the key economic decisions?

A

What to produce?
How to produce?
Who is to benefit from the goods and services produced?

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13
Q

What are consumer goods?

A

Goods that give satisfaction to consumers

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14
Q

What are capital goods?

A

Goods used to produce other goods

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15
Q

What are economic resources known as?

A

Factors of production

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16
Q

What are the factors of production?

A

Land, Labour, Capital, Enterprise

17
Q

What is capital + example?

A

Man made physical equipment used to make other goods and services

(eg machinery, computer equipment)

18
Q

What is enterprise?

A

Entrepreneurs are individuals who take risks, innovate and combine the other factors of production in order to produce a good/ service

19
Q

What is land?

A

All naturally occurring resources such as minerals, the sea, coal and the environment.

Can be divided into renewable and non renewable resources

20
Q

What is labour?

A

People involved in production (referred to as human capital)

21
Q

Why is the environment a scarce resource?

A

There are only limited amount of resources on the planet.

These are made up of renewable and non renewable resources

22
Q

Difference between renewable and non renewable resources

A

Renewable resources can be replenishes, so the stock level of the resources can be maintained over period of time.

Non renewable resources cannot be renewed and are used up more quickly than replaced eg. coal, oil

23
Q

What is the basic economic problem?

A

Scarce resources compared with society’s unlimited wants

24
Q

Definition of opportunity cost

A

The cost of the next best alternative given up when making a choice/ decision

25
Q

Example of opportunity cost for a firm

A

Choosing between hiring extra staff or investing in a new machinery

26
Q

Example of opportunity cost for the government

A

Choosing between spending more on the NHS or spending more on education

27
Q

Definition of a PPC curve?

A

A diagram that shows the maximum possible output of two goods or services in an economy, assuming resources are fully employed

28
Q

Explanation of points on a PPC

A

When economy is on its PPC, its using all of the resources (factors of production) so is productively efficient.

When economy is inside its PPC it is productively inefficient as not all factors of production are being used.

Points outside the PPC are not currently achievable (could be achieved by having more/ better factors of production)

29
Q

What causes shifts of the PPC curve?

A

Changes in the quantity and quality (efficiency) of the factors of production

30
Q

How can a PPC curve show opportunity cost?

A

An increase in the amount of capital goods produced leads to a loss of output of consumer goods (more are given up)

31
Q

Definition of economic growth

A

An increase in the productive capacity of an economy over time

32
Q

How can a PPC curve show economic growth?

A

Improvements in any of the factors of production lead to an outward shift of the PPC, meaning there has been an increase in the productive capacity of the economy, so more goods are produced.

33
Q

What factors cause an outward shift of the PPC? (3)

A
  • technological improvements that lead to increased productivity of capital goods (increased quality).
  • discovery of new resources eg. oil, gas (increased quantity)
  • improvements in education and training that lead to a more productive workforce (increased quality)
34
Q

What is the difference between long run and short run growth?

A

Long run growth is when more of both capital and consumer goods can be produced (PPC shifts outwards).

Short run growth is when existing resources are being made more use of.

35
Q

How can a PPC curve show economic decline?

A

Both of less goods can be produced due to fewer resources available, meaning PPC shifts inwards.

36
Q

What factors cause an inward shift of the PPC? (3)

A
  • natural disasters such as earthquakes or floods, meaning loss of natural resources (land)
  • wars (limited/smaller workforce and less resources)
  • a recession may lead to permanent loss of productive capacity if business shuts down.
37
Q

Definition of productive efficiency

A

When maximum output is produced from the available factors of production and when it is not possible to produce more of one good or service without producing less of another

(any point on PPC)

38
Q

Definition of allocative efficiency

A

When an economy’s factors of production are used to produce the combination of goods and services that maximise society’s welfare

economics: micro AS (3 decks)

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