4.1.1. - Economic Methlodology And The Basic Economic Problem Flashcards
Why is economics a social science
It studies human society and social relationships which cannot be controlled
How does economics being a social science explain the methodology for its investigations
-Models are used rather than lab experiments
-people are very unpredictable which puts limitations on the ability to investigate them in a controlled lab environment
What are models
Data that is based on simplified assumptions, usually presented as a diagram
Define value judgement
A assessment of something as good or bad based on ones own standards or priorities
How to value judgements influence economic decision making
When deciding what the best option is, peoples views may be influenced by:
- the positive consequences of different decisions
- their moral and political judgements
What is the central purpose of economic activity
To produce goods and services to satisfy the needs and wants of the economy
What are the three questions of the economic problem
What to produce? (What finite resources will limit choices)
How to produce it? (Labour or machines)
For who shall it be produced for? (Who will products be sold to, what price will be charges, workers pay )
What are the 4 factors of production?
Land, labour, capital, enterprise
Define land
The stock of raw materials; including non renewable resources, renewable resources, non sustainable resources and sustainable resources
Define labour
The workforce of an economy, each worker has a unique set of characteristics. Their value to the economy is called their HUMAN CAITAL
How can human capital be enhanced
Education and training
Define capital
The manufactured stock of resources that are used during the production of goods and services;
WORKING CAPITAL: goods that become the final product that is sold to the consumer
FIXZED CAPITAL: stock of materials that don’t turn into the final product but are used to transform working capital to the final product,
Define enterprise
The use of land labour and capital to produce a profitable good or service
Define scarcity
Created due to the finite resources and the infinite wants,
Why does scarcity result in choices having to be made
The scarce resources must be allocated between its different uses, therefore a choice as to be made between where the scarce resource is used
What does a PPF show
The maximum amount of any two goods or services that we can produce based on the available resources.
it demonstrates the different combinations of the goods that can be produced
How do PPF’s demonstrate scarcity
There is a maximum limit of production, there would be no PPF if infinite resources could be used
How do PPF’s demonstrate choice
The points on the PPF illustrate the possible combinations of production that can be carried out
How do PPF’s demonstrate opportunity cost
The gradient shows opportunity cost, a steeper gradient means opportunity cost is greater.
How is productive efficiency illustrated on a PPF
Productive efficiency is the maximum output that can be made will current resources
All points along the PPF are calculated using the most productively efficient figures
How is allocative efficiency illustrated on a PPF
Allocative efficiency is when there is a maximum social welfare.
The point on the PPF that illustrates the utility maximising combination is demonstrating allocative efficiency
What factors will cause a PPF to shift in
Events that will effect the total number of goods that can be produced:
- war
- natural disaster
- pandemic
- prolonged recession ( hysteresis [deskilling] )
- emigration
- climate change
Factors that will cause a shift out of the PPF
Anything that will increase the rate of goods that can be produced
- immigration
- goof weather
- education/ training
- technological advancements
- discovery of new resources
When would a PPF be linear
Is the opportunity cost is constant
Why is the PPF usually concave to the origin
When switching resources from producing good A to good B, the initial increase in output from allocating more resources to good B will diminish.
This is because when switching resources, the best labour moves first so output will be at its highest.
Why is it impossible to have a point outside of the PPF
The ppf shows the most efficient combinations using all of the resources, therefore it isn’t achievable to produce more goods.
What do points inside the PPF show
They show productively inefficient production of goods and services, meaning that resources are being wasted.
What is prolonged recession
Long lasting downturn in economic activity, causing hysteresis (deskilling)
