Economic methodology and the economic problem Flashcards
What is a normative statement?
Normative statement is a statement that includes a value judgement and cannot be refused just by looking at the evidence
What is a need?
Something that is necessary for human survival, such as food, warmth, clothing or shelter ( is the opposite to a want )
What is a need?
Something which we desire but is not necessary for human survival ( is the opposite to a need )
What is a capital good?
A good which is used in the production of other goods or services.
Consumer good?
A good which is consumed by individuals or am households to satisfy their needs or wants
Factors of production
Inputs into the production process, such as land, labour, capital and enterprise
Finite resource
A resource, such as oil, which is scarce and runs out as it is used. Also known as a non-renewable resource
Renewable resource
A resource, such as timber, that with careful management can be renewed as it is used
Fundamental economic problem
How best to make decisions about the allocation of scarcer resource among competing uses so as to improve and maximise human happiness and welfare
Scarcity
Results from the fact that people have unlimited wants but resources to meet these wants are limited. In essence, people would like to consume more goods and services than the economy is able to produce with its limited resources
Opportunity cost
The cost of giving up the next best alternative
Production possibility frontier (PPF)
A graph to show what can be produced when all FOP’s are maximised
Economic growth
The increase in the potential level of real output the economy can produce over a period of time
Full employment
When all who are able and willing to work are employed
Unemployment
When not all of those who are able and willing to work are employed
Resource allocation
The process through which the available FOP’S are assigned to produce different goods and services, E.g how many of society’s economic resources are devoted to supplying different products such as food, cars, healthcare and defence
Productive efficiency
For the economy as a whole occurs when it is impossible to produce more of one good without producing less of another. For a firm it occurs when the average total cost of production is minimised.
Allocative efficiency
Occurs when the available economic resources are used to produce the combination of goods and services that best matches people’s tastes and preferences
What is a positive statement?
A statement of fact that can be scientifically proven to see if it is correct or incorrect
