Economic Methodology And Economic Problem Flashcards
Definition of economics
Social science study societies and the human interaction within those societies
What is a model
A model is a simplified version of reality, all models make assumptions
What is the difference between positive and normative statements
Positive are objective statements based on empirical evidence and facts. They can be proven true/false
Normative statements are based off of opinions and beliefs
How do value judgements influence economic decision making and policy?
Value judgement influence gov choice as they spend money on policies. They will impact decision-making because they are influenced by how the public will react to economic policies and what they see as a favorable outcome
Factors affecting people’s choices
People’s decisions is influenced by positive outcome and the morality of choices. (This is a normative statement)
What is the central purpose of an economy
goods and services to satisfy needs and wants
What is the economic problem
Scarce resources vs unlimited wants
What are the three fundamental economic questions
What to produce, How to produces and for whom
What are the different economic systems
Central (government controlled), free (no government only consumer choice), mixed (Both gov and free), traditional (individuals make their own good)
What are the different factors of production
Land (rent) , labor (wage), capital (interest), enterprise (profit)
What is a PPF model?
A model that shows alternative ways that an economy can use its scarce resources. The model demonstrates scarcity, trade off, opportunity cost and efficiency
What are the 4 key assumptions of the PPF
Only two goods can be produced
Full employment of resources
Fixed resources (Ceteris Paribus)
Fixed technology
What are the 3 functions of a PPF
Unemployed resources (inside the curve)
Opportunity cost (movement from one point to another)
Economic growth (increase in productive potential)
What is opportunity cost
The cost of the next most desirable alternative forgone
What is increasing opportunity cost
This causes are bowed out PPF where if the two goods are not adaptable then to produce a bit more of one good you must produce a lot less of the other. The change isn’t constant.
What’s a straight line PPF
A PPF with constant opportunity cost because the resources of the two are easily adaptable E.g produce 20 more cars for 10 less truck same for if you produce another 20 cars
What are the 3 shifter of the PPF
Changes in resources quantity or quality
Changes in technology
Changes in trade
What is productive efficiency
Products being produced effectively in a less costly way. This is any point on the curve
What is allocative efficiency
The products being produced are more desired by society. This is an optimal point on the PPF
What gives rise to opportunity cost
Alternative uses of resources
Define factors of production
Resources used to produce goods and services. They are the inputs in the production process
