4.1.1 Economic Methodology And The Economic Problem Flashcards
What are features of a positive statement?
- Objective
- Can be tested with factual evidence
- Can be right or wrong
- “will” / “is”
What are features of a normative statement?
-Subjective
- based on opinion and value judgements
- “should”
What are people’s views influenced by?
The positive consequences of different decisions and moral and political judgement
How is economics different to other sciences?
Economists cannot conduct scientific experiments
So they used models to make assumptions instead
What is ceteris paribus?
The assumption that all other things remain constant - so nothing else changes
What is the purpose of economic activity?
To produce goods and services which satisfy the consumer needs and wants
What are economic outputs?
The goods and services
What’s are economic resources?
Inputs in the form of the factors of production
What are the key economic decisions?
- What to produce?
- How to produce?
- Who will benefit form the goods and services produced?
What are the factors of production?
Land
Labour
Capital
Enterprise
What is capital? Give examples.
Goods which can be used in the production process
Eg. machines and buildings
What is enterprise?
People taking risks and innovating
What is land? Give examples.
Natural resources or the physical space for capital
Eg. oil, coal, wheat, water, land
What is labor?
Human capital which is the workforce of the economy
What is the reward/incentive for capital?
Interest from the investment
What is the reward/incentive for enterprise?
Profit
What is the reward/incentive for land?
Rent
What is the reward/incentive for labor?
Wages
Why is the environment a scarce resource?
Because there are only a limited amount of resources on the planet
What are renewable resources? Give examples.
Resources which can be replenished faster than they are consumed
Eg. oxygen, solar power, fish
What are non-renewable resources? Give examples.
Resources which decrease in stock-level as they are consumed
Eg. coal, oil, gas
How can environmental scarcity be managed?
- Limiting deforestation
- Imposing fish quotas
- recycling
- substitutes for energy
What is the fundamental economic problem?
Scarcity resulting from limited resources and unlimited wants
What is the opportunity cost?
The value of the next best alternative forgone
Where is productive efficiency?
Points A and B
What is the law of diminishing returns?
The opportunity cost of producing more of product A increases as the lost units of product B that could’ve been produced increases
What would producing at points C or D (under the curve) mean?
Productive inneficiency
As resources are not used to their full productive potential
What does point E mean?
Producing at E is not yet attainable with the current resources
How do you show economic growth on a PPF?
Curve shifts outwards
How can an outward shift in the PPF be achieved?
Using supply side policies
To increase resources
OR
To increase quality of existing resources
What are capital goods?
Goods which can be used to produce other goods
What are consumer goods?
Goods which cannot be used to produce other goods
Why are all points on the PPF boundary productively efficient?
Because resources are being used to their productive potential
Why are not all points on the PPF curve allocatively efficient?
Because more of one good cannot be produced without reducing the amount of the other product available
What is allocative efficiency?
When no one can be made better off without making someone else worse of
How could allocative efficiency be gained?
If more of both goods were produced as this would improve welfare
What does the PPF show and fail to show?
- Shows potential output
- Does not shoe how goods are distributed in society (allocative efficiency)
