MICRO 1 - Economic Methodology & the Economic Problem Flashcards
What is an opportunity cost?
the value of the next best alternative forgone when a choice is made
What is a normative statement?
a statement that reflects an opinion
What is a positive statement?
a statement that reflects facts
What is the central purpose of economic activity?
maximise the production of good and services to satisfy need and wants
Are good tangible or intangible?
Tangible
Are services tangible or intangible?
Intangible
What do individuals as workers seek to maximise?
welfare, their level of pay, maximise earnings vs job satisfaction
What is the economic problem? (simple terms)
wants are infinite, resources are not
Example of a mixed economy
UK
Example of a planned economy
North Korea
Example of a free market economy
Singapore
4 factors of production:
land, labour, enterprise, capital
What is a PPF?
a curve depicting the various combinations of 2 products that can be made when all available resources are used
What should you label the axis on the PPF of a firm?
good x & good y
What should you label the axis on the PPF of a country?
Capital goods & consumer goods
What does a PPF show?
- the oppourtunity cost
- different choices
- how much an economy can produce
given existing resources
What are consumer goods?
good which are consumed directly for their utility e.g. pizza
What are capital goods?
good which are used to make other goods e.g. sewing machines
What is economic growth?
an increase in the potential level of real output
What is short-run economic growth?
not all resources were being used, now they are (point inside the curve to point on the curve)
What is long-run economic growth?
outward shift of the PPF, able to produce more of both goods in the same relative ratio
What is a recession?
2 consecutive quaters of economic growth, the actual level of output is below the potential
Why could there be an inward shift of the PPF?
less resources are available from e.g. natural disaster, war, ran out of natural resources
Why could there be an outward shift of the PPF?
an increase in the productive potential of a firm or economy e.g. higher productivity, better management, increase size of the labour force
What is scarcity?
limited availibility of resources compared to unlimited needs and wants
What are trade-offs?
Possible combinations when allocating resources, something has to be given up to increase production
Oppourtunity costs (PPF)
gradient represents the oppourtunity costs of switching from producing one good to another
What is efficency? (PPF)
Point on curve = productivity efficency
Point inside the curve = underutilisation of economic resources
