Economic Methodology and the Economics Problem Flashcards
Economics is a social science because…
It involves the study of human behaviour and economic decision
making.
Differences from other sciences
Economics studies how people make choices, interacts with each other and how this shapes the economy.
Positive statement
They can be tested
Normative statement
Based on value judgement, subjective based on opinion
How do value judgements influence economic decision making
Different
economists may make different judgements from the same statistic
People’s views concerning the best option are influenced by…
the positive
consequences of different decisions and by moral and political judgements
What is the central purpose of economic activity
is to produce goods and services which satisfy
consumer needs and wants
What are the key economic decisions
- What to produce
- How to produce
- Who is to benefit from the goods and services produced
The factors of production
Land, Labour, Capital, Enterprise
What is the fundamental economic problem
Scarcity, it results from limited resources and unlimited wants
Scarcity means that…
Choices have to made about how scarce resources are allocated between different uses.
Opportunity Cost
The value of
the next best alternative forgone.
What does the PPF diagram illustrate
Different features of the fundamental economic problem, such as: resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth.
The Law of Diminishing Returns
Asserts that as the use of one variable input increases while others are held constant, the additional output gained will eventually diminish.
Capital Goods
Goods which can be used to produce other goods, such as
machinery.
