1.Economic Methodology and the Economic Problem Flashcards
What is economics?
Economics is the study of choice and decision making in a world with limited resources.
What is the basic economic problem?
That both goods and resources needed to produce them are scarce because of limited resources.
What are the factors of production?
Land-raw materials and natural resources,
Labour-human effort, mental or physical,
Capital-made man goods e.g. machines,
Enterprise-risk-taking activity utilising land, labour and capital.
What are the rewards for the factors of production?
Land-rent,
Labour-wages,
Capital-interest,
Enterprise-profit.
Define a want.
Something that is desired by a consumer but not necessary for survival.
Define a need.
Something that is required by a consumer to survival, e.g. water.
Define a positive statement.
A statement of fact which can be scientifically proven.
Define a normative statement.
A statement that includes a value judgement and cannot be scientifically tested, an opinion.
Define opportunity cost.
The cost of giving up the next best alternative.
What causes scarcity?
Unlimited wants, but limited goods, resources and incomes.
What does the PPF diagram show?
The different combinations of two goods which can be produced with a fixed quantity of goods, and the opportunity cost of producing more of one good and less of the other.
When will the PPF curve shift outward? Why? And what can happen as a result?
When the potential level of real output increases. Because of advances in technology or increased efficiency in labour. It means that a larger quantity of both goods can now be produced.
How are resources being used if point is inside the PPF curve?
Resources are being used inefficiently.
What is the central purpose of economic activity?
The production of goods and services to satisfy the needs and wants of the public.
What are the key economic decisions?
What to produce, how to produce, and quantity produced, plus who is to benefit from goods and services produced.
