Economic Methodology and the Economic Problem Flashcards
What is a positive statement?
A phrase (statement) that is factual and can be scientifically proven.
They often include words like ‘will’, ‘was’ or ‘is’.
What is a normative statement?
A phrase (statement) that is subjective and makes a value judgement.
They often include words like ‘should and ‘ought’.
What is a value judgement?
Won’t be asked, but good to understand in relation to a normative statement.
An assessment of something as good or bad in terms of one’s standards or priorities.
What is a market economy?
A market economy is a system in which the prices of goods and services are decided by the market itself.
What is a mixed economy?
A mixed economy is a system in which goods and services are provided through the market system, except where the government chooses to intervene.
What is a planed or command economy?
A planned or command economy is a system where the government decides on the production of goods and services.
What are the factors of production?
Land, Labour, Capital, Enterprise.
Land: All natural resources.
Labour: Human effort used in the production of goods.
Capital: Goods used solely to assist production of other goods.
Enterprise: The entrepreneur is the person who combines the other factors of production, to produce goods & services. They are motived by profit.
What does PPF (or PPB) stand for?
Production possibility frontier (or boundary).
Define opportunity cost.
The loss of alternatives when an economic decision is made.
Define productive efficiency.
Productive efficiency is the optimal use of resources to produce the maximum output for the minimum cost.
Define allocative efficiency.
Allocative efficiency is the optimal use of resources to maximise satisfaction and suit consumer preferences.
Can only be at one point on the PPF curve.
