Nature of Economics! Flashcards
What does ceteris paribus mean?
All other factors being equal.
What are positive statements?
Objective statements that can be tested with factual evidence, and be accepted or rejected.
What are normative statements?
Subjective opinions based on a value judgement.
What’s the basic economic problem?
There are unlimited wants but scarce resources.
What’s the basic economic question?
What to produce, how to produce it and who to produce it for.
What’s opportunity cost?
The value of the next best alternative forgone.
What are the factors of production?
Capital, enterprise, land and labour.
What’s capital?
Man-made goods which can be used in the production process.
What’s the reward/incentive of capital?
Interest from the investment.
What’s enterprise?
Someone who takes risks and uses the other factors of production to produce a good or service.
What’s the reward/incentive of enterprise?
Profit (an incentive to take risks).
What’s land?
Natural resources such as oil, coal, wheat or water that are used in the production process.
What’s the reward/incentive of land?
Rent.
What’s labour?
Human capital, which is the workforce of the economy.
What’s the reward/incentive of labour?
Wages.
What’s a renewable resource?
A resource that can be replenished, so the stock level of resources can be maintained over a period of time. We have to assume that the rate of consumption is less than the rate of replenishment.
What’s a non-renewable resource?
Resources that cannot be replenished.
What’s a production possibility frontier?
A diagram that shows the maximum possible combinations of capital and consumer goods that an economy can produce with its current resources. It can show the opportunity cost between different goods.
What do the positions on a PPF curve show?
Inside the curve shows an inefficient usage of resources. On the curve shows an efficient use of current resources. Outside the curve is unattainable with current resources.
How is economic growth shown on a PPF curve?
Short term - an outward movement inside of the curve.
Long term - a shift of the curve itself.
What are capital goods?
Goods which can be used to produce other goods.
What are consumer goods?
Goods which can’t produce other goods.
What’s specialisation?
Concentrating on a specific product or task, to make the production process faster and cheaper.
What are the advantages of specialisation?
Higher output and higher quality.
A greater variety of products.
Firms can take advantage of economies of scale.
More competition can lead to lower prices for consumers.
