MICRO - 1. the economic problem ✅ Flashcards
define POSITIVE economics
scientific/objective study of subject. can be proven true/false with evidence
define NORMATIVE economics
value judgements, can’t be proven, ‘should’
how can data help in economics
not only to verify or refute models but also to provide basis for economic decision making
what is the difference between real and nominal data
nominal is current prices and real is constant prices as data expressed may take inflation into account
why is some macroeconomic data inaccurate
data like balance of payments, CPI is only reliable if accurate sampling and measuring and may not provide good measure of relevant economic variable
define the economic problem
nearly all resources are scarce but wants are infinite so resources have to be allocated between competing uses, involving opportunity costs. free goods are not included as they arent scarce
what is an economy
a social organisation deciding what, how and for whom production should be
what are factors of productions and their rewards
land - raw materials and can be sustainable or unsustainable
labour - workforce of economy, human capital
capital - manufactured stock, working/ circulating capital or fixed capital
enterprise - seeking out profitable opportunities for production
rewards are rents, royalties, wages, interest and profit
what is an opportunity cost and what does it involve
every choice has range of alternatives, benefit lost from next best alternative is opportunity cost and for consumers = what given up when spending, producers = could be wages given up when buying a machine
what is a free market economy
they attempt to solve the economic problem with minimal government intervention and state makes most allocation decisions
what does a PPF depict?
maximum potential output of an economy, growth depicted by outward shift whereas inward shift is decline. only shows what could be produced not what should and shows combinations if all resources fully employed
how is inefficiency depicted on PPF?
production inside PPF = inefficient use of resources
however not all points on PPF are allocatively efficient - occurs when social welfare maximised
growth in economy happens if ….
quantity and quality of resources available increases however with war, global warming, unemployment prominent then productive potential could fall
