Economics methodology and the economic problem - Key Terms 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.
Words such as ought, should, better and worse often provide clues that a statement is normative.
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 or 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 scare resources among competing uses so as to improve and maximise human happiness and welfare.
Scarcity
Results from the fact that people have unlimted wants but resources to meet these wants are limited.
In essence, people would like to consume more goods and services than the economy is able to produce with its limited resources.
Opportunity cost
The cost of giving up the next best alternative.
Production possibility frontier
A curve depicting the various combinations of two 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 the 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 scare resources.
Resource allocation
The process through which the available factors of production are assigned to produce different goods and services.
Production 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 economics resources are used to produce the combination of goods and services that best matches people’s tastes and preferences.
Value judgement
Whether something is desirable or not.
Factors that shift the whole PPB curve to the right are:
Investment in new technology.
New resources such as minerals.
Increased supply of labour through increases in population and migration.
Improvements in human capital through education and training.
Better management of resources via division of labour and specialisation.
Changed attitudes encouraging entrepreneurialism.
