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Economics > Micro: Economic Methodology and the Economic Problem > Flashcards

Micro: Economic Methodology and the Economic Problem Flashcards

1
Q

what is economics

A

Economics is a social science

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2
Q

what does economics study

A

Economics studies how humans make decisions under scarcity

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3
Q

what do economic agents make economic decisions based on

A

Political judgements
Short-term outcomes
Moral judgements
Normative statements

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4
Q

what is short-termism

A

The choices a someone makes may be motivated by short term gain

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5
Q

what are the disadvantages of short-termism

A

But this decision may not lead to the best outcome in the long term

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6
Q

what are examples of short-termist policies

A

Lowering income tax today
Promising to remove university tuition fees
Paying staff higher wages now

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7
Q

when does scarcity occur

A

At any point in time, there is only a finite amount of resources available

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8
Q

what does scarcity mean

A

Scarcity means that our wants and needs are greater than the amount of available resources

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9
Q

why does scarcity happen

A

because resources and raw materials are needed to produce these goods and services, but they are in limited supply

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10
Q

what type of decisions do economists study

A

The types of decision include: individual, family, business and societal

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11
Q

how is economics different to other social sciences

A

Controlled laboratory tests aren’t possible
Economists rely on the ceteris paribus assumption
So when economists study the relationship between two factors, they’ll assume that one factor changes while the rest stay constant

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12
Q

how is economics similar to other social sciences

A

Models and theories are used to explain real world evidence
models use real life data
Statistical analytics can be used
models rely on assumptions and simplifications

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13
Q

what are positive statements

A

Positive statements describe the world as it is. They are objective statements that can be proved

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14
Q

what are normative statements

A

Normative statements describe how the world should be. They are opinions that contain value judgements

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15
Q

where are value judgements found

A

Value judgments are often found in normative statements

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16
Q

what are value judgements

A

They are judgements about society that cannot be quantified and tested

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17
Q

what do value judgements affect

A

Value judgements affect economic decision-making, so normative statements are important

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18
Q

What is the main purpose of economic activity

A

The main purpose of economic activity is to produce goods and services to satisfy consumers’ wants and needs

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19
Q

What are needs

A

Needs - things people can’t live without

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20
Q

What are examples of needs

A

Water is an example of a need

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21
Q

What is a want

A

Wants - things people can live without but desire

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22
Q

What is an example of a want

A

An example of a want is smartphones

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23
Q

What is the basic economic problem

A

There are not enough resources on earth to satisfy humans’ unlimited wants and needs

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24
Q

What does the basic economic problem involve working out

A

The basic economic problem involves working out how to allocate limited resources as effectively as possible to satisfy people’s unlimited wants and needs

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25
Q

Why do we have to choose on the best way to use resources

A

There are scarce resources in society. Because of this, choices have to be made on how to use these resources

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26
Q

What are the foundation of economic decision

A

The foundation of economic decisions are:
What goods/services we produce?
How we produce those goods/services?
Who we produce those goods/services for?

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27
Q

What does ceteris paribus mean

A

everything else remains equal

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28
Q

What are the four types of economic resources

A

Land
Labour
Capital
Enterprise

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29
Q

What is enterprise as an economic resources

A

The entrepreneurial actions that individuals take to try and make a profit

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30
Q

What is land as an economic resource

A

Finite and non-finite resources found on the planet, including animals, water and natural materials
The exception is air, which is infinite

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31
Q

What is capital as an economic resources

A

The equipment used to generate goods and services within the production process
Capital must be made before it can be used

32
Q

What are the two different types of the economic resource labour

A

Human capital

Labour force

33
Q

What is human capital

A

the value human labour brings to the production process

34
Q

What is labour force

A

the population that can work

35
Q

What type of people have a higher human capital

A

People who are more useful in the workplace have a greater human capital

36
Q

What type of air is finite

A

Although air itself is not finite, clean, non-polluted air is

37
Q

What does scarcity mean people need to make choices between

A

Scarcity means that people need to make choices between goods and services

38
Q

How must resources be allocated

A

Resources must be allocated in a way that is seen to be rational

39
Q

What is up to economic agents to decide

A

It’s up to economic agents to decide on how to allocate resources

40
Q

What are the three main economic agents

A

The three main economic agents are:
Producers
Consumers
Governments

41
Q

Who are producers

A

people/firms that produce goods or supply services

42
Q

Who are consumer

A

people/firms who purchase the goods/services

43
Q

What do governments do for economies

A

establishes rules for economies

44
Q

What actions does economic activity include

A

Economic activity includes a wide variety of actions, such as:
Production of goods and services
Consumption of goods/services

45
Q

Because of scarce resources what questions must we ask about economic activity

A

Because resources are scarce, we must ask three questions about economic activity.
What, how, and who to produce for?

46
Q

What should producers decide

A

Producers must decide what products to make and the selling price of products

47
Q

What must consumers decide

A

Consumers must decide what products to purchase and how much they want to spend on products

48
Q

What must governments decide

A

Governments must decide how much they should get involved in the production and consumption process

49
Q

What is the opportunity cost defined as

A

The opportunity cost is defined as the ‘next best alternative foregone’

50
Q

What is an example of opportunity costs exceeding monetary costs

A

attending university

51
Q

When do people face tradeoffs

A

People face a tradeoff when they make choices

52
Q

When is opportunity cost useful

A

Opportunity cost is a useful concept when thinking about allocating resources

53
Q

What are the issues of opportunity cost

A

Not all factors have alternatives
Some alternatives are unknown
Agents may lack information on alternatives
It can be difficult to switch some factors to another use

54
Q

What does the production possibility frontier explain

A

The production possibilities frontier (PPF) model explains the constraints experienced by society

55
Q

Draw a PPF

A

Seneca 1.1.5

56
Q

Where is opportunity cost on a PPF

A

The opportunity cost is the slope of the PPF

57
Q

Why is the PPF curved

A

The PPF is curved because of the law of diminishing returns

58
Q

When does the PPF shift outward

A

The PPF shifts outward if there is economic growth

59
Q

Why does economic growth cause an outward shift on the PPF

A

This is because the productive capacity of the economy has increased

60
Q

What tradeoffs occur of the PPF

A

To produce more of one good, you must produce less of another

61
Q

What does it mean if there are points underneath the PPF

A

If there are any points underneath the PPF, this means not all economic resources are being deployed

62
Q

What points along the PPF is productivity efficient

A

Every point on the Production Possibility Frontier (PPF) is productively efficient

63
Q

What does efficiency refer to

A

Efficiency refers to a lack of waste

64
Q

What is static efficiency

A

Static efficiency refers to the efficiency at a point in time

65
Q

What can static efficiency be separated into

A

This can be separated into allocative and productive efficiency

66
Q

What does it mean if you are productively efficient

A

With all available inputs and technology, it is impossible to produce more of one good without decreasing the quantity of another good being produced

67
Q

What is allocative efficiency

A

When a specific combination of goods is efficient for society

68
Q

What does allocative efficiency refer to

A

It refers to a point on the PPF, not the entire curve

69
Q

How is economic growth shown on a PPF

A

Economic growth is shown by an outward shift

70
Q

How is negative economic growth shown on a PPF

A

Negative economic growth is shown by an inward shift

71
Q

How is reallocation of resources shown on a PPF

A

If there is a fixed amount of resources, then shifts along the PPF reflect the reallocation of resources

72
Q

What does increasing resources cause the PPF to do

A

Increasing resources - PPF shifts outwards as output increases

73
Q

What does decreasing resources cause the PPF to do

A

Decreasing resources - PPF shifts inwards as output decreases

74
Q

What do improvement in technology cause to happen to the PPF

A

When resources are fixed but output increases (e.g. through improving labour or technology), the PPF shifts outwards

75
Q

What does it mean if there is a point outside the PPF

A

it is not currently possible to produce at this point

Economics (16 decks)

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