4.1.1 economic methodology and economic problem Flashcards
how is economics a social science
it studies the economic behaviour of individuals and groups
methodology of economics
observe consumer behaviour
form hypothesis on how consumers spend
develop predictions from hypothesis
use evidence to test the productiom
conclude to accept or reject hypothesis
positive statement
statement of fact that can be scientifically tested as correct or incorrect
eg inflation has risen this year
normative statement
statement that contains value judgement and cannot be refuted just by looking at evidence
eg winter fuel allowance should be increased
value judgement
whether something is desireable or not
used by gov ministers- decisions made by them will always have winners and losers but they have a moral right to make these decisions
central purpose of economic activity
production of goods and services to satisfy needs and wants
need
something that is necessary for human survival eg clothing food or shelter
want
something that is desirable but isnt necessary for human survival eg phones
what does satisfying needs and wants increase
economic welfare
key economic questions (3)
what to produce
whom to produce for
how to produce it
economic system
set of institutions within which a community decides what how and whom to produce for
market economy
economy in which goods and services are purchased through the price mechanism in a system of markets
command/planned economy
economy in which government officials or planners allocate economic resources to firms and other productive enterprises
mixed economy
economy that contains a large market sector and a large non market sector
eg UK
capital good
good that is used in the production of another good or service
consumer good
a good consumed to satisfy needs or wants
factors of production
capital (machinery or tools)
enterprise (organise FoP and take risks- managers)
land (any natural resources)
labour (effort humans contribute)
what type of resource is the environment
scarce
can be renewable or non renewable
fundamental economic problem
humans have infinite wants but resources are finite
choice
choosing between alternatives when making a decision on how to use scarce resources
they have an oppurtunity cost
oppurtunity cost
cost of giving up the next best alternative
what is a ppf
curve depicting the various combinations of two products that can be produced when all available resources are fully and efficiently employed
all points on the ppf are
productively efficient
only one point on the ppf is
allocatively efficient
