1.1 Nature of Economics Flashcards
What are positive statements?
They are objective (factual) statements that can be tested, amended or rejected by referring to the available evidence.
What are normative statements?
They are subjective statements- they carry value judgements.
What is the basic economic problem?
It is the problem of how to make the best use of scarce resources, and it exists because the needs and wants of society are endless, but there are limited resources available to satisfy them.
What do societies have to decide concerning its resources?
- what goods and services to produce
- how best to produce goods and services
- who to produce them for
What is the main purpose of economic activity?
The production of goods and services to satisfy the ever changing needs and wants of consumers.
What are the factors of production?
Capital: tools and machinery, goods made by people that are used to supply other products
Enterprise: entrepreneurs organise factors of production and take risks when seeking to exploit market opportunities.
Land: natural resources
Labour: human input
What are capital goods?
Capital goods are goods that are used to make consumer goods and services. E.g. machinery and software. This includes working capital- stocks of finished products and component parts (intermediate products).
What is automation?
It is a production technique that uses capital machinery/technology to replace or enhance human labour. This is also known as capital-labour substitution.
What is investment to an economist?
It is the purchase of capital or the addition to an economy’s capital stock.
What are reneweable resources?
They are resources that are replaceable if the rate of extraction is less than the natural rate at which the resource renews.
Some examples are: solar energy, tidal power, oxygen, biomass, forestry and fish stocks.
What are non-renewable resources?
They are resources that are finite- they can’t be replenished as they are used.
Some examples are: fossil fuels, metal ores and nuclear fuels.
The rate of extraction of finite resources depends in part on the current market price.
What is opportunity cost?
It is the value of the next best alternative that is foregone.
What are the objectives of economic agents?
Households (individuals/consumers) aim to maximise the satisfaction gained from consuming goods and services, using their limited incomes.
Firms aim to maximise profits.
Employees aim to maximise earnings.
Governments aim to maximise the total welfare of their citizens.
What do production possibility frontiers (PPFs) show?
The maximum productive potential of an economy.
The maximum potential output combinations of two goods that either an economy (macro) or a firm (micro) can achieve, in a set period of time, given the available resources.
What is marginal rate of transformation (MRT)?
It is the number of units of one good that will be foregone in order to produce an extra unit of the other good.
It is the opportunity cost of producing another unit of good Y in terms of good X.
