chapter 1 micro: economic methodology and the economic problem Flashcards
why is economics a social science
it studies the economic behaviour of individuals and groups
what is the full process of a study/hypothesis on consumer behaviour
- scientists observe consumer behaviour
- hypothesis is formed
- predictions are developed
- evidence is used to test predictions
- either supports or doesn’t support hypothesis and is either used as a theory or scrapped or ammended
what is a positive statement
they are objective and can be tested scientifically (can be incorrect and proven wrong)
what is a normative statement
they are subjectiveand express a more ethical opinion. they cannot be scientifically tested
what is the fundamental economic problem
that there are limited resources and unlimited needs and wants so we need to find a way to allocate the resources
what is improving economic welfare
satisfying people’s needs and wants
what is a planned economy
when the decisions about what, how much and for whom to make products for are all made by the government
do planned economy countries have a large public or private sector
public
what is a market economy
when consumers and producers make decisions independently, according to self interest and with minimal government intervention
what happens when there is competition in market economies - why?
it keeps prices low but the quality is good because they want people to choose their product
describe a mixed economy
when the government controls some prices via taxes, and provides public goods and services
but there are also competition which is fair and ensures safe standards for consumers and workers
what are the factors of production
land
labour
capital
enterprise
reward of land
rent
reward of labour
wages
reward of capital
interest
reward of enterprise
profit
what is wrong with the environment being a scarce resource
the earth will run out of resources
what is opportunity cost
the cost of giving up the next best alternative
what does the ppf represent
it presents different combinations of goods bring produced, if the resources are being used efficiently, and all factors of production are employed
what is the law of diminishing marginal returns
the more you have of something, the less you value having more of it
how to increase economy’s productive potential
an increase of the quality or quantity of the factors of production
what does economic growth do to the ppf
it causes an outward shift
how to increase the quantity of land
deforestation to clear land
colonise countries
how to increase the quantity of labour
incentivise people to work by raising taxes or wages
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