Micro 1 - Nature of Economics Flashcards
Define Utility
Satisfaction gained from consuming a product or service
What are the two types of economic statements?
Positive and Normative
What are positive statements?
Positive statements are objective statements that can be tested by referring to the available evidence.
(They can be proven true or false.)
What are normative statements?
Normative statements are subjective statements which contain a value judgement. (They are opinions.)
What is Empirical data?
Data collected from experiments or real life observations.
Why is economics considered as a social science?
Because it looks at the behaviour of humans either as individuals or as part of organisations and their use of scarce resources.
What are some of the processes used by economists to make models?
Use simplifying assumptions to limit the number of variables in an investigation.
Test theories and models against relevant and known facts.
Use empirical data to improve and revise their economic models.
What is the name of the assumption used by economists to get around the existence of multiple variables?
Ceteris Paribus
When do economists use Ceteris Paribus?
When looking at the relationship between two factors.
What is the economic problem?
How can the available scarce resources be used to satisfy people’s infinite needs and wants as effectively as possible?
What are the four factors of production?
Land
Labour
Capital
Enterprise
What does the factor of production land include?
Land and all the natural resources in and on it.
Eg. Renewable/Non renewable resources
Water
Animals
What does labour as a factor of production refer to?
Labour is the work done by those people who contribute to the production process. The population available to work is called the labour force.
What does capital as a factor of production refer to?
Capital is the equipment, factories and schools that help to produce goods or services.
What does Enterprise as a factor of production refer to?
Enterprise refers to the people (entrepreneurs) who take risks and create things from the other three factors of production.
Define renewable resource
A resource whose stock level can be replenished naturally over a period of time.
They require careful management as they may decline if they are consumed faster than the environment can replenish them.
Define non-renewable resource
A resource whose stock level decreases over time as it is consumed.
Define scarcity
When there are unlimited wants and finite resources.
What are the general 3 economic agents?
Producers
Consumers
Governments
Define producers
Firms or people that make goods or provide services.
Define Consumers
People or firms who buy the goods and services.
Define Governments
A government sets the rules that other participants in the economy have to follow but also produces and consumes goods and services.
Define opportunity cost
The opportunity cost of a decision is the next best alternative that you give up in making that decision.
What are some problems with the concept of opportunity cost
- All alternatives may not be known
- Some factors don’t have alternative uses
- There may be a lack of information on alternatives and their costs
- Some factors can be hard to switch to an alternative use
What is the purpose of markets?
Markets are a method for allocating scarce resources
What is a trade off?
A trade off is when you have to choose between conflicting objectives because you can’t achieve all of your objectives at the same time. It involves compromising and aiming to achieve each of your objectives a bit.
What are some problems of using the concept of opportunity cost?
- Not all alternatives are known
- There may be a lack of information on alternatives and their costs
- Some factors don’t have alternative uses
- Some factors can be hard to switch to an alternative use
What is a value judgement?
A value judgement is a decision made based upon a particular set of values
What is the basic economic problem?
How can the available scarce resources be used to satisfy people’s infinite needs and wants as effectively as possible?
