Chapter 1 - Economic methodology & economic problem Flashcards
What’s a positive statement?
A positive statement is a statement about what is, and what contains no indication of approval or disapproval
A positive statement can be wrong!
What’s a normative statement?
A normative statement expresses a value judgement about whether a situation is desirable or undesirable.
They are statements about what should or ought to happen
What is a need?
A need is something that is necessary for human survival, such as food,clothing, warmth or shelter.
What is a want?
A want is something that is desirable, such as fashionable clothing, but is not necessary for human survival
What is economic welfare?
Economic welfare is the economic well-being of an individual, a group within society or an economy as a whole.
What are the 3 economic systems?
Planned economies
Mixed economies
Market economies
What are the 3 factor inputs?
Labour input
Land
Capital
What are free goods?
Free goods are goods which are not used up in consumption.
i.e. There is no opportunity cost and the marginal cost of supplying one more unit is close to zero
What is a PPF (a production possibility frontier)?
Represents all possible combinations of goods an economy or a firm can produce, when all production factors are fully employed and used efficiently.
What if the point is inside the PPF curve?
Suggests resources are not being utilised efficiently.
What if the point is outside the PPF curve
Not attainable with the current level of resources
What if the point is on the PPF curve?
Combinations of the two goods that lie on the PPF are feasible and can be produced using all available factor inputs efficiently.
What is opportunity cost?
Opportunity cost measures the cost of a choice in terms of the next best alternative forgone (given up).
What reasons could cause a PPF to shift outwards?
Increase in the stock of factor inputs available for production.
A rise in efficiency (productivity) meaning that more output can be produced from given resources.
Advances in the state of technology and the beneficial impact of innovation in improving production processes.
What does an outward shift in the PPF signify?
An expansion of a country’s productive potential, in other words, long term economic growth.
