Economic Methodology and the Economic Problem Flashcards
What does ceteris paribus mean in economics?
Other things are being held equal or constant, so nothing else changes.
This assumption allows economists to isolate the effects of one variable in their models.
Why do economists need to make assumptions?
Because they cannot conduct scientific experiments like in the natural sciences.
Assumptions help in the formulation of economic models based on real-life scenarios.
What is the difference between positive and normative statements?
Positive statements are objective and can be tested, while normative statements are subjective and based on value judgments.
Positive statements can be accepted or rejected based on factual evidence.
What words indicate a positive statement?
Words such as ‘will’ and ‘is’.
These words suggest that the statement can be tested for factual accuracy.
Give an example of a positive statement.
Raising the tax on alcohol will lead to a fall in the demand for alcohol and a fall in the profits of pub landlords.
This statement can be tested against actual data.
What words indicate a normative statement?
Words such as ‘should’.
These words suggest an opinion or recommendation rather than a testable fact.
Give an example of a normative statement.
The government should increase the tax on alcohol.
This statement reflects a subjective opinion about policy.
How can value judgments influence economic decision-making?
Different economists may make different judgments from the same statistic.
This can lead to varying conclusions based on the same data.
What can influence people’s views concerning economic decisions?
The positive consequences of different decisions and moral and political judgments.
These influences can shape opinions on the best economic options.
What is a characteristic of positive statements?
They can be tested with factual evidence and results can be examined.
This characteristic allows for empirical validation.
What is an example of a normative statement related to resource allocation?
The free market is the best way to allocate resources.
This statement reflects a subjective opinion on resource distribution.
What is the purpose of economic activity?
To produce goods and services which satisfy consumer needs and wants.
What are the inputs used in economic activity called?
Factors of production.
What do economists have to decide regarding scarce resources?
What is to be produced, how should it be produced, and who will benefit from the goods and services produced.
What does the problem of opportunity cost require decision-makers to consider?
They have to be careful about the decisions made.
What does ‘how should it be produced’ consider?
How the goods and services produced will be distributed and the rewards from each factor of production.
What do firms aim to achieve in production?
Minimise costs and maximise profits.
What factors do firms consider to decide between labour intensive and capital intensive production?
How much each factor of production costs and how productive it is.
Who benefits from the goods and services produced?
Consumers who have purchasing power.
Fill in the blank: Consumers who are willing and able to pay the price charged for a good or service will get the _______.
good or service.
True or False: The government and private sector do not need to consider how much of each good is to be produced.
False.
What are economic resources?
Economic resources are the factors of production: land, labour, capital, and enterprise.
What does the acronym CELL stand for in economics?
CELL stands for Capital, Entrepreneurship, Land, and Labour.
What is capital in the context of economic resources?
Capital refers to physical goods used in the production process, including fixed assets like machines and buildings, and working goods like finished or semi-finished consumer goods.
