Chapter 1 - Introduction Flashcards
What is economics?
Economics is the study of efficient use of scarce human and property resources for the purpose of obtaining the maximum satisfaction of our material wants.
What are the two fundamental facts of economics?
- Society has unlimited wants
* Economic resources are scarce
What are the two key types of economic resources?
- Property resources
* Human resources
What are the two types of property resources?
- Land - all natural resources
* Capital - all investment goods
What are the two types of human resources?
- Labour - human physical and mental talents used to produce G&S
- Enterprise - one who innovates to combine land, capital and labour into the production of G&S
In exchange for supplying resources the owners receive what?
- Rent for land
- Interest for capital
- Wages for labour
- Profit for entrepreneurial ability
What are the five fundamental questions of economics?
- How much total output is to be produced?
- What combination of output is to be produced?
- How are these outputs to be produced?
- Who is to receive/consume the outputs?
- How can change be accommodated?
The practice of economics combines what three elements?
- Describing or gathering the facts
- Developing principles or theories that make generalisations about economic behaviour
- Applying the insights gained from economic statistics and analysis in the form of policy prescription
What are the two approaches taken by economists to develop economic theories?
- Induction - reasoning that proceeds from facts to generalisations
- Deduction - reasoning from assumptions to conclusions by a hypothesis
What is economic theory?
Facts must be arranged, interpreted and generalised to derive appropriate economic theory.
Theories or principles are the end result of economic analysis. Meaningful statements drawn from facts.
What is ‘ceteris paribus’? and what does it mean?
It is the ‘other things being equal’ assumption and is used:
- In analysis to signify that all variables other than the one being considered are held constant
- to focus attention on the relationship between chosen variables to minimise distracting influence of other variables
What is macroeconomics?
concerned with behaviour of aggregates (collection of specific economic units as if they were one unit) in the economy
What is microeconomics?
Concerned with the behaviour of specific units within the economy.
The production possibilities curve is bowed out from the origin because of what?
Because of increasing opportunity cost
Any point inside the production possibility frontier indicates what?
Resources are underemployed and more output could be produced with available resources.
The scarcity problem persists why?
Because material wants exceed available productive resources
The production possibilities curve illustrates the basic principle that?
If all resources of an economy are employed, and productive efficiency is achieved, more of one good can be produced only if less of another good is produced.
Productive efficiency refers to what?
The use of the least-cost method of production.
An ‘increase in efficiency’ suggests that an economy is what?
Is able to get more goods and services from a given amount of resources.
Ceteris Paribas, what would cause an economy’s production curve to move to the left?
A reduction of the workforce. A recession or decrease in economic growth is shown by a leftward shift of the curve
What are ‘factors of production’ also known as?
Economic resources
The concept of economic efficiency is primarily concerned with what?
Obtaining the maximum output from available resources.
What is opportunity cost?
The cost is the highest valued alternative foregone in the pursuit of an activity.
What is a normative statement?
A statement based on values and can be proved neither right or wrong. It seeks to prescribe the way it should be.
