Economic Metholodogy Flashcards
Positive statements
A statement of fact that can be tested to see if it is correct or not
Normative statements
Carry value judgements (right or wrong, useful or un-useful) and cannot be proven through evidence
Rational consumers
Wish to maximise their satisfaction or utility from consumption by correctly choosing how to spend their limited income
Producers/firms
Wish to maximise profits, by producing at lowest cost, the goods and services that are desired by consumers
Government
Wishes to improve the economic and social welfare of citizens
Ceteris paribus
All else being equal
Free market economists
Believe that the market forces should allocate resources in society
Interventionists
Believe that governments should have a more prominent role in allocating resources within society
Social welfare economists
Believe the government should either directly or through imposing regulations on markets to enable them to allocate resources more ‘fairly’ or in a way which does not damage society
Ways to ration scarce resources
-by market price -by consumer income -by need -by house postcode -by education level -by age -by gender -by nationality
Market economy
Markets forces allocate resources. Driven by profit motive. Limited role for state. Private sector dominates
Mixed economy
Mix of state and private ownership. Government intervention in markets. Mix will vary from country to country
Command economy
Most resources are state owned. Planning allocates resources. Little role for market prices
State-Owned Industries
Businesses wholly or part state-owned, like Royal Bank of Scotland, or Network Rail
Capital goods
Goods used in the production of other goods and services like machinery
Consumer durables
Products that provide a steady flow of utility over their working life (smartphone)
Consumer non-durables
Products that are used up in the act of consumption (coffee)
Moral and political judgements
When the government claim a moral right to decisions due to the political manifesto published before election which has been supported by voters regardless that among voters there will be losers
Economic welfare
The economic well-being of an individual, a group in a society or an economy
Economic system
The set of institutions within which a community decides what, how and for whom to produce
Factors of production
Inputs into the production processes. Land, Labour, Capital, Enterprise.
Technical Progress
New and better ways of making goods and new techniques for producing more output from scarce resources
What is economic growth
The increase in the potential level of real output the economy can produce over a period of time
