Microeconomics, part 1- Economic Methodology and the Economic Problem Flashcards
Value judgements definition:
Statements or opinions expressed that are not testable or cannot be verified. They depend on the views of the individual and the values they hold.
Normative statements definition:
Opinions that require value judgements to be made.
Positive statements definition:
Statements that can be tested againts real world data.
What is the central purpose of economic activity?
The production of goods and services to satisfy the needs and wants and thereby to improve economic welfare of consumers.
Opportunity cost definition:
The next best alternative forgone when an economic decision is made. (Trade off.)
Economic welfare definition:
The economic well-being of an individual or group within society or an economy.
What are the four factors of production?
- Land
- Labour
- Capital
- Enterprise
Capital definition:
The stock of goods and services used to make other goods and services. NOT MONEY.
What are the rewards for the four factors of production?
- Land-rent
- Labour-wages
- Capital-interest
- Enterprise-Profit
Production possibility boundary definition:
Indicates the maximum possible output that can be achieved, given a fixed set of resources and technology in a particular time period.
What are factors that shift PPB to the right?
- Investment in new technology
- Introduction of new resources such as minerals
- Increased supply of labour through increase in population and migration (more workers)
- Improvements in human capital through education and training
- Encouraging entrepreneurship
- Increased productivity (better workers)
What are reasons for being below PPB capacity?
- Unemployment
- Uneven distribution of wealth
- Factories are closed at weekend
- There is space to build more factories
What are factors that shift PPB to the left?
- Emigration
- Decline in investment in capital
- Disease leading to a decline in human capital
- Disease
- War
- Disaster
Productive efficiency definition:
This is achieved in an economy when it is not possible to make anyone better off without making someone else worse off, or you cannot produce more of one good without producing less of another. It is producing at lowest average cost so you are at capacity.
Allocative efficiency definition:
Occurs when the available economic resources are used to produce the combination of goods and services that best matches people’s tastes and preferences.
