Chapter 1 Flashcards
Positive economy
Seeks to describe and explain economic facts and events observed objectively
statement that in principle capable of being refuted with reference to evidence
Normative economy
Outcomes of economic behaviour questions whether they are good or bad
statement of value/subjective opinion cannot be proved/disproved with appeal to facts
Resources (factors of production)
CELL
capital, entrepreneurship, land, labour
capital can be physical (machinery) or financial man made resources used in production of goods and not consumed on its own
entrepreneurship is managerial ability which organises factors of production
land (supplied by nature freely)
labour (human effort- physical +mental ) can be made more productive with honing skills by training
The problem with given scarcity
Unlimited wants but limited resources which makes allocation of resources necessary
Microeconomics
Demand and supply of particular goods and services
How individual consumers behave
How they interact with each other
3 questions asked to allocate resources; to make choices
What to produce and how much
For whom to produce
How to produce
Opportunity cost
Value of the next best alternative forgone when a choice is made
What is the study of economics
with given problem of scarcity, it is the allocation of resources to production of goods and services to satisfy consumers’ unlimited wants. Which involves choices and hence opportunity cost
Economic agents and their aims
Consumer
aim is to maximise marginal benefit/utility
Marginal private benefit should outweigh the marginal cost
Firms
aim is to make profits and ensure marginal revenue is more than marginal cost
will produce to the point where marginal revenue is= marginal cost
Govt
Aim to maximise societal welfare
Workers
Aim to maximise welfare at work and expect increased yield in income
Marginalist priniciple
Marginal benefit
Additional benefit gained from consuming/producing one more unit of the good
Marginal cost
It is ideal that marginal benefit outweighs marginal cost
Decision making process
- Constraints
- Opportunity cost
3.Costs & Benefits - Information
5.Perspectives
leading to a
6.decision made
determining…
7.intended consequences - unintended consequences
Economic agents weigh costs & benefits of an activity
by making decision to maximise self interest
They do so practicing efficiency
1. Economic efficiency
Good is produced at minimum cost where individual people and firms get maximum benefit from resources
- Allocative efficiency
Achieved when current combination of goods and services produced and consumed attains greatest level of satisfaction - Productive efficiency
Achieved when firms are producing maximum output for given amount of inputs. Resources are fully employed to achieve maximum output with least cost combination of inputs
Indicators of economic inefficiency
1.Unemployment
Not all available resources are used in production of goods and services
2.Underemployment
Resources engaged in production but operating below potential capacity (workers who work lesser than their stipulated shift)
An economy can decide on the fate of goods produced
- Produce goods for future consumption
2. Produce goods for current consumption
Rational decision making can be illustrated by…
a PPC curve
which shows maximum attainable combinations of 2 goods and services that can be produced in an economy when all resources used, fully and efficiently
at a given state of technology
