Chapter 1- Economic Methodology And The Economic Problem Flashcards
Define value judgements?
Statements or opinions expressed that are not testable or cannot be verified and depend very much on the views of the individual and the values they hold
Define Normative Statements?
Opinions that require value judgements to be made
Define positive statements?
Statements that can be tested against real world data
State the central purpose of economics?
The production of goods and services to satisfy needs and wants, and thereby to improve economic welfare
Opportunity cost?
The next best alternative forgone when an economic decision is made
4 factors of production?
- land
- labour
- capital
- enterprise
The payment for each factors of production?
- land=rent
- labour=wages
- Capital=interest
- enterprise=profit
What is the economic problem?
Peoples needs and wants are unlimited however resources (factors of production) to satisfy those wants are limited
3 functions of price?
- Rationing function
- incentive function
- signalling function
What is PPF or PPB
The PPF indicates the maximum possible output that can be achieved given a fixed set pf resources and technology in a particular time period
Factors that shift PPB to the right?
- investment in new technology
- introduction of new resources such as minerals
- increased supply of labour through increase in population and migration
- improvements in human capital through education and training
- encouraging entrepreneurship
- increased productivity
Factors that shift PPB to left?
- emigration
- disease
- natural disaster
- war
What is productive efficiency?
This is achieved in an economy when it is not possible to male anyone better off without making someone worse off, or you cannot produce more of one good without making less of another
What is allocative efficiency?
- occurs when the available economics resources are used to produce the combination of goods and services that best matches peoples taste and preferences
