Economics Methodology Flashcards
What is Economics
A social science that focuses on the study of choice and decisions people make in a world with limited resources
Opportunity Cost
The cost of the next best alternative foregone when a choice is made
Main Economic questions
How, what, who to produce for
How does Economics use science
Theories are made based on observations.
A prediction is made and tested again for evidence.
If it passes the test it is known as a theory.
Positive statement
A statement that can be scientifically tested
Normative Statement
An opinion that cannot be scientifically tested. It is based on valued judgement
Positive economics
concerned with ‘what is’ and ‘what will happen’ if a course of action is taken or not taken
Normative statement
Concerned with what should or ought to be
Production possibility frontier
A diagram that shows different possible combinations that can be produced using available resources
Market Economy
Private enterprises own market and prices which allocate resources between competing uses
What cause a shift is a PPF
Increase in quantity or quality of factors of production.
Technological advances = improved production process
Command economy
Scarce resources are produced and distributed by the government between competing uses
Capitalism
Factors of production are privately owned
Socialism
Factors of production are socially owned
