Economic Methodology And The Economic Problem Flashcards
Why do economists make assumptions?
What do they use?
-to simplify complex scenarios, usingthe concept of ceteris paribus
Unlike Natural sciences…
economics relies on models based on real-life scenarios, not controlled experiements.
What are positive statements?
-objective, can be tested against facts or declared true or false
EX: Is, was, will be
What are** normative statements?**
-based on value judgements, cant be tested against facts, opion based
EX: Should, ought to, assumes
Role of value judgements
-can influence economic decisions/policies
-different economists may draw varying conclusions from the same data, influenced my moral, political or personal perspectives
what is the purpose of economic activity?
What does it require?
- to produce goods/services that satisfy customers wants and needs
- using resources (inputs in form of FOP) to produce (outputs/goods and services)
What are the three economic questions?
-what to produce
-how to produce
-who will benefit from the goods and services produced?
what are the 4 factors of production?
Land, Labour, Captial, Enterprise
CAPITAL (CELL)
What is the reward?
Physical: goods which can be used in the production process.
(machinery, tools, factories, offices)
REWARD: Interest from investment
**ENTERPRISE **(CELL)
what is the reward?
-Organises all Factors of Production in order
REWARD: Profit from production
LAND (CELL)
what is the reward?
what can it be used for?
-includes** natural resources** (minerals, forests, water and land)
-raw materials are used in production process
-can be used as physical space for **fixed capital
REWARD:* Rent***
LABOUR (CELL)
-Human capital, workforceof the economy
-productivity of labour depends of/ education, skills, and training
REWARD: Wages
The environment is a…
Scarce resource
what is** opportunity cost?**
benefit loss of the next best alternative
what is the** economic problem?**
we are in a world full of unlimited wants but limited resources.
