4.1.1 Economic methodology and the economic problem Flashcards
What are positive statements?
objective statements, tested against facts to be declared true/false
What are negative statements?
subjective opinion/value judgement
What is the central purpose of economic activity?
the production of goods and services, using scarce resources to meet people’s needs and wants
What is the fundamental economic problem?
scarcity results from limited resources and unlimited wants - how to allocate scarce resources given unlimited wants?
What are the 4 factors of production? (CELL)
Capital - man made aids to production e.g. machinery
Enterprise - risk takers who innovate and produce goods and services to make PROFIT
Land - naturally occurring resources where goods can be taken
Labour - human resources that can produce goods and services
What does the economic problem force?
choices to be made; WHAT to produce, HOW to produce, FOR WHOM to produce for
Define opportunity cost (choices have one)
the cost of the next best alternative foregone when a choice is made
Scarcity - water scarcity in India (real life example)
Several states in India have been facing acute water shortages affecting farmers and households where ground and surface water has essentially dried up.
Water prices have increased significantly given its scarcity, burdening families and farmers.
India is ranked as one of 17 nations where water stress is extremely high meaning both surface and ground water are running out.
High demand from population growth, drought and poor monitoring of water resources are the driving causes.
What does a PPC curve show?
the maximum quantity of goods or services that can be produced using all available FoP (illustrating scarcity)
and the various output combinations that can be produced depending on how FoP are used (illustrating choice)
What does a point inside PPC indicate?
productively inefficient, wasting FoP showing unemployment of economic resources
What does a point on PPC indicate?
productively efficient, where a firm is utilising all available FoP in order to maximise production
What does a point outside PPC indicate?
unattainable with current resources
Why is the PPC drawn concave?
to illustrate the law of increasing opportunity cost
What does a straight lined PPC indicate?
perfect sustainability of resources, showing constant opportunity cost
What factors cause an inward shift of the PPC?
-technological improvements leading to increased productivity of capital equipment
-discovery of new resources
-improvements in education and training leading to a productive workforce
-changes that lead to an increase in working population e.g. increases in immigration or a raised retirement age
