Economic Methodology And The Economic Provlem Flashcards
Ceteris Paribus
All other factors remain the same
Positive Statements
Factually based comments that can be tested
Normative Statements
Subjective comments that are difficult to test
Fundamental Economic Problem
Scarcity
Central purpose of economic activity
Satisfy needs and wants of society
Factors Of Production And Their Rewards
Land-Rent
Labour-Wages
Capital-Interest
Enterprise-Profit
Land
All of the natural resources that come from the earth used in production
Labour
Includes all of the workforce in the economy
Capital
Man-made aids that are used in the production process
Enterprise
The entrepreneur taking land, labour and capital and organising them to produce products that will be profitable
Economic Problem
Finite resources available to supply infinite wants
Price Mechanism
The medium through which scarce resources are allocated
Opportunity Cost
The benefits foregone of the next best alternative when making a choice
Production Possibility
The maximum possible combination of output of two products
Demand
The amount of a good or service consumers are willing and able to buy at a point in time
Normal Good
If price rises demand will fall
If price falls demand will rise
Veblen Good
Consumers pay more for certain products as their price increases
‘Snob effect’
Inferior Good
Demand decreases as incomes increase
Substitute Products
Goods that act as an alternative for consumers
Complementary Products
Goods often bought alongside each other
