4.1.1 Economic Methodology and the Economic Problem Flashcards
Positive statement
They can be tested with factual evidence and can be accepted or rejected
Normative statements
They are subjective and based on opinion instead of factual evidence
What is the purpose of economic activity?
The production of goods and services to satisfy wants and needs
What is capital?
Man made goods which can be used in the production of other goods e.g machines
What’s the incentive for capital?
Interest from the investment
What is entrepreneurship?
Someone who brings together the other factors of production and takes risks
What is the incentive for the entrepreneur?
Profit- an incentive to take risks
What is land?
Natural resources used in production such as coal, water and oil. As well as a physical space for fixed capital
What is the incentive for land
Rent
What is labour
Human capital which is the workforce of the economy
What is the incentive for labour
Wages
What is the economic problem?
Wants are infinite and resources are finite so choices must be made
What is opportunity cost?
The value of the the next best alternative forgone. E.g if you buy a pack of crisps instead of a chocolate bar the opportunity cost is the chocolate bar
PPF’s
Depict the max productive potential of an economy, using a combination of two goods or services when resources are fully and efficiently employed
What causes a PPF curve to shift inwards?
Loss of labour, extreme weather, war and illness
