1.1 Nature of Economics Flashcards
Nature of Economics
What is the basic economic problem?
the imbalance between unlimited wants and needs and finite resources
What does ceteris paribus mean
it means that when the effect of a change in one variable is considered it is assumed that all other variables are held constant
What is a positive economic statement
its is an objective statement based on evidence and facts that can, therefore be proved or disproved
What is a normative economic statement
it is a subjective statement based on value judgments and cannot be proved or disproved
what is a value judgement in economics
an opinion about an idea or action that expresses a person’s values or preferences about what is good or bad, desirable or undesirable, or fair or unfair
What are the factors of production
resources that include land, labour, capital and enterprise
What is the distinction between a renewable and non-renewable resource
renewable resources can have stock levels which can be maintained at a certain amount, whereas non-renewable resources will eventually be completely depleted
What is opportunity cost
Opportunity cost is the next best alternative forgone when a decision is made
What is a production possibility frontier
it is a graph that illustrates the maximum potential output of an economy when all resources are fully employed
What is a capital good
capital goods are those required to produce other goods - both capital and consumer goods
What is a consumer good
those goods that give satisfaction or utility to a consumer
What is economic growth and how is it shown on a PPF
Economic Growth refers to an increase in productive capacity of the economy indicating an increase in real output and is shown when a PPF expands outwards
What is economic decline and how is it shown on a PPF
Economic decline refers to a decrease in the productive capacity of the economy indicating a decrease in real output and is show when a PPF contracts inwards
What factors may cause an outward shift in the PPF
-discovery of a new natural resource
-development of new methods of production that increase productivity
-improvements in education and training that increase productivity of a workforce
-factors that could increase the size of the workforce, e.g immigration or increased retirement age
What factors may cause an inward shift in the PPF
-Natural disasters or other things that may cause the destruction of productive capacity
-Depletion of natural resources
-Factors causing a reduction in the size of the workforce like emigration
-a deep recession causing factories to close down permanently
