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Microeconomics > Economic Methodology and the Economic Problem > Flashcards

Economic Methodology and the Economic Problem Flashcards

1
Q

What is the key economic assumption?

A

Ceteris Paribus

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2
Q

What is ceteris paribus?

A

The assumption that other things are being equal/constant, so nothing else changes

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3
Q

Why are economic models used?

A

You cannot conduct scientific experiments like in the natural sciences

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4
Q

What are economic models based on?

A

Real-life scenarios, although assumptions are made

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5
Q

What are positive statements?

A

Objective statements that can be tested with factual evidence. Once tested, the results can be examined and then rejected or accepted

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6
Q

What are normative statements?

A

They are subjective statements based on value judgements

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7
Q

Are statistics always interpreted the same way?

A

No, different economists will make different judgements from the same statistic

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8
Q

What are people’s views concerning the best option influenced by?

A

The positive consequences of different decisions, as well as by moral and political judgements

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9
Q

What is the purpose of economic activity?

A

To produce goods and services which satisfy consumer needs and wants

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10
Q

How does economic activity work?

A

It takes resources (factors of production) to produce outputs (goods and services)

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11
Q

What decisions do economists have to make when considering scarce resources?

A
  • What is to be produced?
  • How should it be produced?
  • Who will benefit from the goods and services produced?
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12
Q

What are the ideas around how scarce resources should be utilised?

A
  • It is an issue both the government and private sector face as they must balance how much of each good to produce
  • Because of opportunity cost they have to be very careful with the decisions they make
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13
Q

What are the ideas around how items should be produced?

A
  • Production must be efficient to maximise profits and minimise costs
  • Firms must consider the productivity of each factor of production in order to decide between labour intensive production and capital intensive production
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14
Q

What are the ideas around who will benefit from economic output?

A

Consumers who have the purchasing power can benefit from goods/services produced

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15
Q

What are the factors of production?

A

Economic resources, i.e land, labour, capital and enterprise (CELL)

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16
Q

What are the 3 types of capital?

A
  • Physical
  • Fixed
  • Working
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17
Q

What is physical capital?

A

Goods that can be used in the production process and get used up

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18
Q

What is fixed capital?

A

A long term factor of production that is used in producing goods or services

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19
Q

What is working capital?

A

The difference between a companies current assets and its current liabilities

20
Q

What is the reward/incentive from the use of capital?

A

Interest from investments

21
Q

What is enterprise?

A

The entrepreneur who takes a risk and creates a business using the other 3 factors of production

22
Q

What is the reward/incentive from the use of enterprise?

A

Profit

23
Q

What is land?

A

Natural resources, or the physical space for fixed capital

24
Q

What is the reward/incentive from the use of land?

A

Rent

25
Q

What is labour?

A

Human capital, the workforce of the economy

26
Q

What is the reward/incentive from the use of labour?

A

Wages

27
Q

What are renewable resources?

A

Resources that can be replenished as fast as, or quicker than, they are currently being used

28
Q

What are non-renewable resources?

A

Resources that are being replenished at a slower rate than they are being used, meaning we will eventually run out

29
Q

How can reduce the rate at which we use non-renewable resources?

A

Recycling, reusing items, reducing usage, reducing waste or finding substitutes

30
Q

What is the environment?

A

A scarce resource comprised of a limited amount of resources (a mix of renewable and non-renewable)

31
Q

What is the Central Economic Problem?

A

We have unlimited wants but a finite amount of resources so choices have to be made

32
Q

What is scarcity?

A

There is a finite amount of resources that can be used

33
Q

What is opportunity cost?

A

The opportunity cost of a choice is the next best opportunity forgone.

34
Q

What is a Production Possibility Frontier?

A

A diagram that depicts the maximum productive potential of an economy, using a combination of 2 goods or services, when resources are efficiently employed

35
Q

What does a PPF curve show?

A

The opportunity cost of using a scarce resource

36
Q

What does the law of diminishing returns state?

A

An increase in one factor generates lower and lower additional returns, assuming that there are no changes in the other factors of production

37
Q

What is the issue when objects are being produced below a PPF curve?

A

Resources are not being used to their full productive potential

38
Q

What is the issue when objects are being produced above a PPF curve?

A

It is not yet attainable with the current resources

39
Q

What does an outward shift show?

A

Economic growth

40
Q

What does an inward shift show?

A

A decline in the economy

41
Q

What assumptions are made when drawing a PPF curve?

A
  • A fixed amount of resources are used
  • There is a constant state of technology
42
Q

What are capital goods?

A

Goods that are used to produce other goods

43
Q

What are consumer goods?

A

Goods that cannot be used to produce other goods

44
Q

What is allocative efficiency?

A

No one can be made better off without making someone else worse off

45
Q

What is Pareto efficiency?

A

No one can be made better off without making someone else worse off

46
Q

What is a gain in allocative efficiency?

A

When there is an improvement in welfare due to more of both goods being produced

47
Q

What is the difference between PPF and allocative efficiency?

A

PPF only shows potential output, and allocative efficiency shows how goods are distributed in society

Microeconomics (1 decks)

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