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.
what is a consumers** utility?**
the** total satisfaction** received from consuming a good or
service.
what is marginal utility?
extra satisfaction derived from consuming one extra unit of the good.
Why does the demand curve slope because of Diminishing marginal utility
LODMU suggests consumer surplus generally declines with extra units consumed.
-because the extra unit generates less utility than the one already consumed. Therefore, consumers are willing to** pay less **for extra units.
What is maximisation for consumers?
when consumers aim to generate the greatest utility possible from an economic decision. Firms aim to generate the** highest profits**
possible.
Thinking at the margin
-evaluating the impact of small, additional changes (extra production or working hours)
