economic methodology Flashcards
positive statement
objective statements that can be tested with factual evidence and can be consequently be rejected or accepted.
normative statements
are based on value judgement. they are subjective and based on opinion.
what is the purpose of economic activity
to produce goods and services which satisfy consumer needs and wants.
define capital
Physical: goods which can
be used in the production
process Fixed: Machines;
buildings Working:
finished or semi-fin
what’s the reward/incentive of capital
interest from the investments
entrepreneurship
Managerial ability. The
entrepreneur is someone
who takes risks,
innovates, and uses the
factors of production.
Resources are drawn
together into the
production process.
what’s the reward/ incentive of entrepreneurship
profit- an incentive to take risks in order to gain profit
land
Natural resources such as
oil, coal, wheat, water. It
can also be the physical
space for fixed capital.
what’s the reward/ incentive of land
you can get rent paid to you
labour
human capital which is the workforce of the economy
what’s the reward/ incentive of labour
wages
renewable resources
can be replenished so that stock levels of the resource can be ,maintained over a period of time. for example commodities such as fish oxygen or solar power are renewable assuming the rate of consumption is less than the rate of replenishment.
basic economic problem
is scarcity. wants are unlimited and resources are
finite, so choices have to be made. Resources have to be used and distributed
optimally.
The opportunity cost
a choice is the value of
the next best alternative forgone.
opportunity cost examples
government spending. chosing between new staff or a new machine
Production possibility frontiers (PPFs
depict the maximum productive potential of
an economy, using a combination of two goods or services, when resources are fully
and efficiently employed.
The law of diminishing returns
states that the opportunity cost of producing more
yoghurt increases, in terms of the lost units of cheese that could have been
produced.
effect of economic decline on the ppf
. Only production under and on
the PPF is attainable. Production outside of the PPF is not obtainable. If the ppf curve shrinks then the room for production also shrinks
indicator of positive economic growth
can be shown by an outward shift in the PPF,
indicator of negative economic growth
cna be shown by an inward shift of the ppfwe
difference between moving along and moving inwards on the ppf
Moving along the PPF uses the
same number and state of resources, and shifts production from fewer consumer
goods to more capital goods,
Shifting the PPF curve outwards, for example, uses either more resources or resources of a greater quality. This reduces the opportunity cost of producing either capital or consumer goods, since more goods can be produced overall.
Capital goods
are goods which can be used to produce other goods, such as
machinery.
Consumer goods
are goods which cannot be used to produce other goods, such as
clothing
productive efficiency
this is when all resources are
being used to their productive potential so it is efficient.
allocatively efficient
is when no one can be made better off without making
someone else worse off
