Nature of economics Flashcards
Ceteris paribus
All other things being equal
All other things remaining the same
Economics is a social science so
difficult to set up experiments to test hypothesis .
As economists have to gather data in the everyday world.
Other variables are always changing so it difficult to decide whether evidence supports or disagrees with a hypothesis
Economics
The allocation scarce resources to provide for unlimited human wants
Positivive statement
Based on facts which can be tested as true or false
Normative statement
Based on Value judgement which cannot be tested as true or false
Role of Value of Judgement
Have a major influence on economic decision making for consumers and producers
Have role in Government policy
The Economic Problem
Based on Scarcity
Resources are finite while human wants are infinite
Opportunity Cost
Opportunity cost refers to the value of the next best alternative forgone
Consumers, Producers, Government all experience
Marginal Analysis
The effects of producing or consuming one extra unit of a good or service
cost or benefit
Renewable
A resource whose stock level can be replenished naturally over a period of time
E.g Wind Power, Fish, Timber, Soil
Non-Renewable Resource
A resource whose stock level decreases over time as it is consumed
E.g Coal, Oil, Gas, Copper, Aluminium
Problem with Renewable Sources
May decline over time if they are consumed at a faster rate than which the environment can replenish them
Management of things such as Deforestation, Soil erosion and Coastal Managements
Improve Non-Renewable Source
Can reduce the rate of decline of Non Renewable sources by recyling, developing new subsitutes and new technology
Production Possibility Frontier
The maximum potential output of a combination of goods an economy can achieve when all its resources are fully and efficiently employed given the current level of tecnology
Use of Production Possibility Frontier
It can be used illustrate Scarcity and Opportunity Cost
Consumer Goods
A good that directly provides utilitiy to consumers
Wanted for the Satisfaction
Like Chocolate
Capital goods
A good that is used to produce consumer goods or services
Wabted for consumer goods and service it can provide
Like machines
Outward shift of PPF
Used to show economic growth
Could be due to
* Increase in quantity and quality of resources
* Higher education
* Expansion Government training schemes
* increase in investment
* development of new technology
If an economy/firm is located on any point on PPF
Efficient Allocations of sources
If an economy/firm is located within PPF
Inefficient Allocation of sources
If an economy/firm is located above PPF
Unobtainable given the resources and technology
Shift Inwards of a PPF
Could be due to War or natural disasters
Specialisation
It occurs when an individual, a firm, a region or a country concentrates on the production of a limited range of goods
Advantages of Specialisation
- Increases Productivity
- Increases Living Standards
- Higher level of global output
