economic methodology and the economic problem Flashcards
what is a want
something that is desired but not essential
what is a need
something that is necessary for survival
what is effective demand
demand backed by the ability to purchas
what is the economic problem
resources are scarce but wants are infinite and so there are trade offs which result in opportunity costs when deciding the allocation of these finite resources
what is opportunity cost
loss of the next best alternative
whats the difference between micro and macro economics
microeconomics is the branch of economics which studies individual markets and firms whereas macroeconomics studies the economy as a whole
what is a positive statement
one that can be tested against the facts and is falsifiable. it is objective and measurable
what is a normative statement
one that contains a value judgement so cannot be tested and is based on what ought to be rather than what is or isn’t
what do each economic agents aim to maximise
consumers- total utility
govt- social welfare
producers- profit
workers- wages and benefits from work
what is a ppf curve
a diagram showing the capacity of a firm with a set amount of resources time and technology. shows the maximum combination of two goods that can be produced. illustrates opportunity cots
why is the ppf curve usually curved
the law of diminishing returns
what does a straight ppf curve mean
opportunity costs is constant because the resources are equally efficent for producing both goods
what is the law of diminishing returns
its that there comes a point where the extra output of consumer goods diminishes despite more factors of production being allocated towards it
what do the inwards and outwards shifts mean
rightwards shift means that capacity has increased and leftwards shift means capacity has decreased
what do the points on a ppf curve mean
inside the curve is under/below capacity. outside the curve is unattainable and on the curve is productive effeciency where all resources are fully employed
what causes an outwards shift
means capacity has increased so new/ improved technology, increased supply of labour, higher productivity, more minerals and raw materials, improved human working capital through education and training
what causes an inwards shift
emigration, war, disease, disaster
where is the opportunity cost greater
what is a non parallel shift
when a factor only increases capacity for the production of one of the goods
what is consumer rationality
maximising their own welfare
what is total utility
the total satisfaction from purchasing a good
marginal utility is
the change in total utility when consuming an extra unit of product
what is the law of marginal utility
law of marginal utility is that there comes a point when consumption increases but utility begins to fall
what is imperfect information
when there is misunderstood, inaccurate or incomplete data
what is asymetrical information
when the buyers and sellers have different amounts of information, often the buyer knows less
