Microeconomics 1. Economic methodology and the economic problem Flashcards
What is a positive statement?
A statement of fact that can be scientifically tested to see if it is correct or incorrect
What is a normative statement?
A statement that includes a value judgement and cannot be refused by looking at the evidence
What is Economic methodology?
Involves the application of tested economic theories to explain real-world economic behaviour
What is a value judgement?
Whether something is desirable or not
What do government ministers do?
Make value-based judgements when deciding on economic policies
What is the conclusion of government policy decisions?
There will always be winners who gain and losers who suffer as a result of it
What is a need?
Something that is necessary for human survival, such as food, clothing, warmth, or shelter
What is a want?
Something that is desirable, such as fashionable clothing, but is not necessary for human survival
What is economic welfare?
The economic well-being of an individual, a group within society, or an economy
What is an economic system?
The set of institutions within which a community decides what, how and for whom to produce
What is a market economy?
An economy in which goods and services are purchased through the price mechanism in a system of markets
What is a Command economy (Planned economy)?
An economy in which government officials or planners allocate economic resources to firms and other productive enterprises
What is a mixed economy?
An economy that contains both a large market sector and a large non-market sector in which the planning mechanism operates
What is production?
Converts inputs or factor services into outputs of goods and services
What is a capital good (producer good)?
A good which is used in the production of other goods or services
What is a consumer good?
A good which is consumed by individuals or households to satisfy their needs or wants
What are the factors of production?
Inputs into the production process, such as land, labour, capital and enterprise
What is a renewable resource?
A resource, such as timber, that with careful management can be renewed as it is used
What is a non-renewable resource (finite resource)?
A resource, such as oil, which is scarce and runs out as it is used
What is an important part of improving economic welfare?
Increased consumption of material goods
What is the entrepreneur?
The factor of production that decides what to produce, how to produce and for whom to produce
What do environmental resources comprise?
All the natural resources that are used or can be used in the economic system
What is the fundamental economic problem?
How best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare
What is scarcity?
Results from the fact that people have unlimited 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
What is a choice?
Choosing between alternatives when making a decision on how to use scarce resources
What is opportunity cost?
The cost of giving up the next best alternative
What is the production possibility frontier?
A curve depicting the various combinations of two products (or types of products) that can be produced when all the available resources are fully and efficiently employed
What is technical progress?
New and better ways of making goods and new techniques for producing more output from scarce resources
What is economic growth?
The increase in the potential level of real output the economy can produce over a period of time
What is full employment?
When all who are able and willing to work are employed
What is unemployment?
When not all of those who are able and willing to work are employed
What is resource allocation?
The process through which the available factor of production are assigned to produce different goods and services, e.g. how many of society’s economic resources are devoted to supplying different products such as food, cars, healthcare and defence
What is productive efficiency?
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
What performs the allocation task in a market economy?
The price mechanism
What is the UK economy?
A mixed economy, containing a mix of market and non-market sectors, and private and public sectors
