Economic methodology and the economic problem Flashcards
STUDY
What is economic methodology?
The idea that when studying the economy, assumptions must be made
What does ‘ceteris paribus’ mean?
If all else remains equal
What is a positive statement?
A statement that is objective - it can be proven or tested with factual evidence
What is a normative statement?
A statement that is subjective - it is based on value judgements which can influence economic decisions
What is the purpose of economic activity?
The use of scarce resources to produce goods and services to satisfy consumer wants and needs
What are the factors of production (CELL), with an example for each?
Capital (e.g. machinery), enterprise (e.g. managers), land (e.g. raw materials), labour (e.g. workers)
What is the basic economic problem?
There are scarce resources but unlimited wants
What is opportunity cost?
The next-best alternative given up when making an economic decision
What does a PPF (production possibility frontier) diagram show?
The maximum productive potential/capacity of an economy when resources are fully and efficiently used
What does a shift in a PPF curve show?
Outwards shift shows economic growth, inward shift shows decline
How can a PPF curve be shifted?
Through an increase or decrease in the quantity or quality of CELL, which affect the productive potential
Capital vs consumer goods
Capital goods are used in the production of other goods and services, while consumer goods are the final goods offered to consumers to satisfy needs and wants
What is productive efficiency?
When resources are used to their productive potential - any point on the PPF curve is productively efficient
What is allocative efficiency?
When economic resources are utilised to produce the combination of goods and services which maximise economic welfare
What is economic welfare?
The economic satisfaction/wellbeing of individuals/groups in an economy
