1.1 Nature of Economics (1.1.1 - 1.1.3) Flashcards
What kind of science is Economics?
A social science
What is a social science?
the scientific study of societies and social interaction
What is Economics?
A social science that deals with the production, consumption and distribution of goods and services
How is Economics similar to the Natural Sciences?
It uses the same methods of:
- conducting research
- collecting data
- using maths to create models and theories
How is Economics different to the natural sciences?
It is very difficult to test the economic models in economics, as there are so many factors that can change
Why do Economists build models?
to understand behaviour and to explain real world evidence
What does Ceteris Paribus mean?
It is Latin for ‘all other things held constant’
When is the Ceteris Paribus assumption used by Economists?
When they are building their theories and models
Why do economists build models based on a set of assumptions?
- as controlled laboratory tests are not possible
- in real life economists can’t keep variables constant
What is a positive statement?
An objective statement that can be tested using real world data to see if it is true or false
What is a normative statement?
it involves a value judgement and cannot be proven or tested
What kind of words does a normative statement tend to include?
‘should’ and ‘ought’
What is a value judgement?
statements expressed that depend on the views of the individual and the values they hold
What is the basic Economic problem?
That there are not enough resources to satisfy the unlimited wants of humans
What are wants?
things people can live without but desire (e.g. smartphones)
What are needs?
things people can’t live without
What do Economists sometimes refer to the ‘Economic Problem’ as?
The problem of Scarcity
Why do choices have to be made on how to use resources?
Because resources are scarce
What is opportunity cost defined as?
the next best alternative forgone
Explain opportunity cost
The cost of one item can be seen as the lost opportunity to consume something else
What can Opportunity cost sometimes be referred to as?
A price
Why is opportunity cost useful?
- It is useful when thinking about how to allocate resources
- consumers can use it to decide how to spend their earnings
What are 2 issues with opportunity cost?
- Not all factors have alternatives
- Some alternatives are unknown
What are the four factors of production? (CELL)
- Capital
- Enterprise
- Land
- Labour
What is Capital?
The technology and machinery we use to make goods
What is Enterprise/Entrepreneurship?
the willingness and ability to take the risks of combining the other three factors of production in order to make a product or service
What is Land?
All the earth’s natural resources, i.e. land, but also raw materials
What is Labour?
human workers that are used to produce a good
Why is money not a factor of production?
As money cannot be used to produce anything, it can be used to buy factors of production, but money itself can’t be used to make things
What is an Economy?
Any system that tries to solve the economic problem or the problem of scarcity
What are the two types of resources?
renewable and non-renewable resources
What is a renewable resource?
Resources that are being replenished as they are being used
What are non-renewable resources?
Resources that will not replenish after use
When may renewable resources become finite?
if the rate we consume the resource is quicker than the natural rate of production, the resource will become depleted and we will have a finite supply (rate of extraction - tree example)
