Economic Methodology + Economic Problem Flashcards
What is economics?
Economics is the study of scarcity, concerning humans infinite wants and needs, and the finite resources available.
What are positive and normative statements?
Positive statements can be proven or disproven and are based on facts.
Normative statements cannot be proven and are based on opinions, reflecting value judgements.
What is the difference between moral, value, and political judgements?
Moral judgements are based on what is deemed to be right or wrong.
Value judgements are based on right or wrong in a given situation.
Political judgments are based on the need to appeal to electorate or selected groups.
What is economic welfare?
Human happiness, wants and needs, utility. Economic welfare is measured across the whole national economy through GDP, GNI, and HDI.
What is GDP
Gross Domestic Product is the output of a country’s economic activity, the value of goods or services produced by an economy.
What is GNI
Gross National Income measures the income generated by a country (including abroad) GNI and GDP are used to measure the level of wants and needs as they represent levels of money spent on goods and services
What is HDI
Human Development Index considers GNI per head, life expectancy, and mean years of schooling, so it can be seen as better. However, it can overlook inequality, poverty, and lack of empowerment.
What is a market economy
In a market economy, the free market mechanism and market forces determine what to produce and how much. Supply and demand drive production decisions without government intervention.
What is a mixed economy
In a mixed economy, the market largely dictates production but the government intervenes to correct negative effects caused by market forces. Governments regulate merit and demerit goods, along with market failure and positive or negative externalities.
What is a planned economy
In a planned economy, the government decides what goods or services will be produced, how much, and when- central control.
What is market failure
Market failure occurs whenever a market leads to a misallocation of resources in an economy, either failing to provide a good or service, or just the wrong quantity. E.g monopolies p, healthcare, inequality, merit/demerit goods, unemployment, public goods, information asymmetry, and environmental damage.
What are the key economic agents and what do they do?
1) individuals/consumers - gain economic welfare from purchasing goods and services
2) firms - maximise profits, build brands, provide jobs, meet needs (economic welfare)
3) government - facilitate utility, laws and regulations, provide key services in society, control key
What does a production possibility diagram show
A production possibility diagram shows the maximum combination of goods and services than np an economy can produce in a time period with the resources available
