Nature of Economics Flashcards
What does ‘ceteris paribus’ mean?
Holding all other variable constant
–> enables us to examine a single chain of reasoning
What are positive economic statements? + E.g.
Objective statements that can be proved or disproved as they are based on facts.
- GDP, unemployment, Price etc.
What is a Normative economic statement
- Subjective statements based on judgements, cannot be proved or disproved
- e.g. Issues like tax, subsidies, minimum/ max pricing
What is the Problem of Scarcity?
- Resources are finite, wants are infinite
–> have to consider, What and how much of something to product, how to produce it and how goods should be allocated.
What are the Factors of Production + e.g.
- Land –> natural resources, raw materials, soil, etc.
- Labour –> those involved in production, both physical and mental efforts
- Capital –> aids to production, buildings, offices, machinery, tech
- Enterprise –> taking the risks involved in production, bringing factors of production together to produce
Renewable vs. Non-renewable resources?
Renewable –> can be naturally replaced after use e.g. solar power, windpower, fish
Non-Renewable –> those were continued consumption will result in their exhaustion –> oil, copper, coal
What is an Opportunity cost
- The next best alternative that is forgone when a choice is made
- Scarcity of resources implies must be a choice made, Oppertunity cost measures real coast in terms of what is forgone
Economic goods vs. Free Goods vs. Public goods
- Public goods = non-rivalrous and non-excludable –> street light, national defence
- Free Good = not scarce, without limit –> e.g. sunlight
- Economic Good = Created from scarce resources, limited and command a price
What does a PPF show
- the maximum potential output. of an economy when all resources are fully employed
(the opportunity cost between producing two goods) - Can also show if resources are not being allocated efficiently (if operating inside curve)
Why is the PPF curve a curve not a straight line
- to represent the diminishing marginal costs
- As output of one good increases the opportunity cost rises
- Some factors of production will be better suited to production of one good than the other due to immobility of these factors of production e.g. worker who specialises in production of iron will be less productive if switched to make chairs etc.
Economic growth vs. Economic decline
- Growth = increase in productive capacity of economy, indicating increase in real output, PPF shift right
- Decline = decrease in productive capacity, indicating decrease in real output, PPF shift left
What is a movement along a PPF caused by
- Movement along = change in combination of two goods being produced, result in OC
What causes an outwards (5) shift of PPF curve
Outwards
- Discovery of New natural resources
- New methods of production, increasing productivity
- Advances in tech
- Improvements in Education / training increasing productivity
- Increase in size of workforce e.g. immigration, increase retirement age, women
What causes an Inwards (4) shift of PPF curve
- Natural disaster - destruction of productive capacity
- Depletion of natural resources
- Reduction in size of workforce e.g. emigration / compulsory education
- Recession - factories close down
Division of Labour meaning + thinker behind it
production process brown down into many separate specialised tasks
- Adam Smith - ‘Wealth of Nations’
–> ↑Output per Worker due to repetition –> increasing productivity
