Economic Methodology and the Economic Problem Flashcards
Positive Statement
A statement of fact that can be scientifically tested to see if it is correct or incorrect
Normative Statement
A statement that includes a value judgement and cannot be refuted just by looking at the evidence
Need
Something that is necessary for human survival, such as food, clothing, warmth or shelter
Want
Something that is desirable, such as fashionable clothing, but is not necessary for human survival
Economic Welfare
The Economic well-being of an individual, a group within society, or an economy
Production
A process, or set of processes, that converts inputs into output of goods
Capital Good
A good which is used in the production of other goods and services. Also known as a producer good
Consumer Good
A good which is consumed by individuals or 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 scarce resources 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
Opportunity Cost
The cost of giving up the next best alternative
Production Possibility Frontier
A curve depicting the various combination of two products (or types of products) that can be produced when all the available resources are fully and efficiently employed
Economic growth
The increase in the potential level of real output an 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
Choice
Choosing between alternatives when making a decision on how to use scarce resources
Resource allocation
The process through which the available factors of production are assigned to produce different goods and services, e.g. How many of the societies 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 match people’s tastes and preferences
