4.1.1 Economic methodology and the economic problem Flashcards
What is the significance of economics being a social science?
It reflects human behaviour, and is therefore more subjective than natural sciences
What is a positive statement?
Something that is objective ie the truth
What is a normative statement?
Something that is subjective/uses value judgement/opinionated
How do value judgements influence economic decision making?
They are subjective
What is the central purpose of economic activity?
The production of goods and services to satisfy needs and wants
What are the key economic decisions?
What to produce, how to produce and who is to benefit from the goods and services produced
What is the classification of economic resources (factors of production)?
Land, labour, capital and enterprise
What is land?
Natural resource, gets rent
What is labour?
Human effort, gets wage (hourly)
What is capital?
Man-made resource, gets interest
What is enterprise?
The organisation of other factors of production, gets profit
What type of resource is the environment?
Scarce
What is the economic problem?
There is limited resource but unlimited wants
Why is there scarcity?
Due to there being limited resource but unlimited wants
What is the opportunity cost?
The benefit/value of the alternative forgone when a choice is made
What do production possibility diagrams illustrate?
Resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth
What does it mean when a point is on the PPF?
It is productively efficient
What does it mean when a point is inside the PPF?
Resources are being wasted (usually high unemployment)
How is the opportunity cost shown on a PPF?
By the gradient at a point on the PPF
Why does the opportunity cost vary along the PPF?
The FoP are not homogenous as there are different skill sets/inputs for the different products on the 2 axis
What is economics?
The study of how resources are allocated