4.1.1 - economic methodology + economic problem Flashcards
difference between natural science and social science
in a natural science scientists observe aspects of the universe and form theories around it whereas social science is the observation of human behavior and then theories are made around these observations.
why is economics still a science
as it still test theories
how do economist make theories
they observe and then form hypothesis and then make predictions and test evidence.
what are positive statements?
these are statements which can be tested
what are normative statements
value judgement/opinions however they cant be tested. they influence decision making and government policy .
ceteris paribus
when all things are equal this allows scientists to make predictions and develop theories .
what is the basic economic problem
how to allocate scarce resources given unlimited wants.
what is environment
a scarce resource.
what are the four factors of production
- capital
- land
- labour
- enterprise
capital
man made aids to production
e.g machinery, tractors and vehicles.
enterprise
people who take risks to produce more goods and services in order to make profit.
land
natural land where goods can be produced or taken e.g farmland
labor
human resources, workers that can produce goods and services.
in a market economy what choices are we forced to make and what are they based on
what to produce - consumer demand
how to produce - cost effectiveness/ most productivity / minimize use of scarce resources.
for whom to produce- those who have sufficient income to afford the good or service.
what is oppurtunity cost
the cost of the next best alternative foregone when a choice is made.
what do we use opportunity cost for
indentify whether we made the right choice
OC> current choice - bad choice
OC< current choice - good choice
what to do if it is a bad choice
allocate resources to the opportunity cost rather than the current choice.
what 2 things do PPF shows
- maximum possible production of 2 goods/services with given factors of production
- the various combination of 2 goods/services that can be produced with given factors of production.
what 3 concepts does PPF display
- opportunity cost
- efficiency
- production of goods and services can be increased
how is opportunity cost displayed on PPF
concave curve indicates the law of increasing oppurtunity cost. increasing the production of one thing will decrease the production of the other thing so there will be an oppurtunity cost.
what is productive efficiency and how is it displayed on the PPF
points on the curve - maximising use of all factors of production to get maximum output.
what is productive inefficiency and how is it displayed on the PPF
within the curve - not maximizing use of factors of production leading to wastage.
what is unattainable and how is it displayed on the PPF
outside the curve - cant produce more goods with the given factors of production
why dont PPFs display allocative efficiency
as allocative efficiency measures if the product is satisfying customer demand and wants. on the PPF we dont know about consumer demand , so even if the point on the curve is productively efficient it may not be allocatively efficient.
