1.1 - Nature of Economics Flashcards
Economics defenition
The study of how we best allocate scarce resources across alternative uses.
What is a positive statement?
It is one that is objective and can be tested against evidence to see whether it is true or false. E.g there is more crime on Sundays.
What is a normative statement?
It is one that is subjective and contain value judgements (cannot be scientifically tested). E.g crisps are better than sweets. Trigger words include ought or should.
What are the 4 things that can define economic activity?
Production - conversion of resources
Distribution - movement of raw resources/finished goods to points of production/consumption
Exchange - any monetary/non - monetary transaction
Consumption - using up of any good or service by consumer to gain utility
What are the 3 sectors?
Primary - extraction of resources in rawest form
Secondary - processing and manufacturing of resources into goods
Tertiary - provision of services and distribution/exchange of goods
Free vs economic goods
A free good is one that doesn’t use scarce resources, whereas an economic good does and has an opportunity cost.
The 3 (sub) fundamental economic problems are…
What to produce, how to produce, for whom to produce.
What are the 4 factors of production/resource categories?
Capital - goods used in production process e.g machinery, buildings like hospitals
Enterprise - the risk taker who organises factors of production
Land - natural resources
Labour - human capital, workforce
What is it called if the output combinations lie 1.on 2. behind 3. beyond the PPF curve?
- Productively efficient - all resources are fully employed.
- Productively inefficient - some resources unemployed and economy not producing to potential.
- Not attainable with current resources.
Law of increasing opportunity cost.
The more we produce of one thing the more we have to give up of the other. Some FOPs are more suited to production than others.
Supply side policies
Policies designed to increase long term productive potential of an economy.
Economic growth
Rightward shift in the PPF due to an increase in the quality/quantity of resources.
Productive efficiency
When all of its scarce resources are fully employed so it is not possible to make more of any one good/service without having to produce less of another.
Allocative efficiency
It is necessary for resources to be used in a way that maximises consumer satisfaction. When both are achieved, ‘Pareto’.
Capital vs consumer goods
Capital - goods which can be used to produce other goods, such as machinery.
Consumer - goods which cannot be used to produce other goods, such as clothing.
