Economic methodology and the economic problem Flashcards
What are the 4 factors of production
- Land
- Labour
- Capital
- Enterprise
What is labour
- the workforce in an economy
- all have different skills, qualifications and experience
What its human capital
- The value of a worker
What is land
- Encompasses all natural resources used in production of goods and services
What is capital
- as a factor of production, it means all man made aids used in production process
- NOT just Money
What is enterprise (entrepreneur)
- Those who organise Land, Labour and capital to produce products that will be profitable
What is ‘the fundamental economic problem’
- That there are finite resources but infinite wants, creating scarcity, and meaning choices have to be made
What is opportunity cost
- the benefit lost of the next best alternative when making a choice
What are trade-offs
- a range of alternatives that are given up (ie multiple opportunity costs at once)
What to Production possibility diagrams show
Different features of fundamental economic problem
-resource allocation
-opportunity cost and trade offs
-unemployment of resources
-growth
What is a PPC
- A curve on a production possibility diagram that shows different combinations of output for 2 products
What does a PPC show
The problem of choosing how to use scarce resources
What does curved PPC mean
4 factors of production (labour, land etc) are not perfectly mobile/interchangeable between different uses
What does straight PPC mean
4 factors of production are completely mobile between different uses
What does a PPC shift outwards mean
- Economic growth due to increase in factors of production- more output produced
What is productive efficiency
- When the society uses resources efficiently- found anywhere along PPC
What is allocative efficiency
- When social welfare is maximised- only found at one point along PPC
What does allocative efficiency take into account
Desires of customers- what is produced depends on consumer preference
What is a positive statement
- An objective statement that can be tested, amended or rejected by referring to evidence
What his a normative statement
- A subjective statement that carries a statement of opinion rather than a fact
What is a need
Something humans require to survive
What is a want
Unessential for survival but people feel it improves standard of living
