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Micro Economics > Economic Methodology And The Economic Problem > Flashcards

Economic Methodology And The Economic Problem Flashcards

1
Q

Why is economics considered to be a social science?

A

As it looks at the behaviour of humans and their use of scarce resources

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2
Q

What does ceteris paribus stand for

A

All other things remain equal

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3
Q

What are the 2 kind of economic statements?

A

Positive
Or
Normative

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4
Q

What is a positive statement? And give an example

A

Objective statements that can be tested by referring to the available evidence.
“A reduction in income will increase the amount of people shopping in pound shops”

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5
Q

What is a normative statement? And give an example

A

Subjective statements which contain a value judgement (opinions)
“The use of fossil fuels should be taxed more highly that the use of renewable fuels”

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6
Q

What are the 4 factors of production?

A

Land
Labour
Capital
Enterprise

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7
Q

What are the 3 fundamental questions?

A

1) What to produce?
2) How to produce it?
3) Who to produce it for?

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8
Q

What do PPFs show

A

The maximum possible output

The options that are available when you consider the production of just 2 types of goods or services

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9
Q

If a point is situated on the PPF what does it show and what does it not show?

A

Shows the maximum possible output

But it may not be allocatively efficient because it might not reflect the production of goods that people want or need

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10
Q

What is an opportunity cost

A

The next best thing that you’re forced to give up

The next best alternative that you give up in making that decision

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11
Q

What shifts the PPF

A

Economic growth (increase in number of workers)

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12
Q

What method could you use to allocate scarce resources

A

Markets

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13
Q

What do mixed economies combine?

A

Free markets and government intervention

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14
Q

Pros of a free market

A

Efficiency
Entrepreneurship
Choice

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15
Q

Cons of a free market economy

A

Inequalities
Non-profitable goods may not be made
Monopolies

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16
Q

Pros of a command economy

A

Maximise welfare
Low unemployment
Prevent monopolies

17
Q

Cons of a command economy

A

Poor decision making
Restricted choice
Lack of risk-taking and efficiency

18
Q

What type of economy has a public sector and a private sector?

A

A mixed economy
(Private sector = businesses that are privately owned)
(Public sector = government)

19
Q

What are economic agents assumed to be

A

Utility maximisers

20
Q

What is the different between marginal utility and total utility

A

Marginal utility is the benefit gained from consuming one additional unit of a good. Whereas total utility is the overall benefit gained from consuming a good

21
Q

State the law of diminishing returns

A

For each additional unit of a good that’s consumed, the marginal utility gained decreases

22
Q

Where will a rational consumer choose to consume until

A

Marginal utility = price

23
Q

What are the economic objectives for producers?

A

Vary

1) maximise profits
2) maximise the firms market share
3) maximise sales
4) ethical objectives

24
Q

What are the economic objectives of consumers

A

Maximise their utility

25
Q

What are the economic objectives of the government?

A 
Economic growth 
Full employment 
Equilibrium in the balance of payments 
Low inflation 
Improved living standards
26
Q

What are the key assumptions used in traditional economic theory

A

Economic agents are utility maximisers

Economic agents are rational

27
Q

What do behavioural economists challenge?

A

The traditional economic theory assumptions because they’re not realistic

28
Q

Why do consumers not act rationally

A

There are a lot of restrictions on people’s ability to make rational decisions:

  • the time available to make a decision is limited
  • not all the information is available, and the info that’s available may not be correct
  • people might not be able to process and evaluate the vast amounts of data
29
Q

Case study :- Cases of obesity in British people have been increasing steadily for 25 years

A

The explosion in obesity rates in developing countries can lead to a move away from manual labour to more office-based work

Micro Economics (2 decks)

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