Part 1 Microeconomics 1 Economic Methodology and the economic problem Flashcards
Positive statement
a statement of fact that can be scientifically tested to see if it is correct or incorrect
Normative statement
a statement that includes a value judgement and cannot be refuted just by looking at the evidence
Need
something that is necessary for human survival
Want
something that is desirable but not necessary for human survival
Economic welfare
the economic well-being of an individual, a group within society, or an economy
Economic system
the set of institutions within which a community decides what, how and for whom to produce
How value judgements influence economic decision making and policy
Government ministers make value-based judgements when deciding on economic policies
There will always be winners who gain and losers who suffer as a result of government policy decisions
What is economic methodology
Economic methodology involves the application of tested economic theories to explain real world economic behavior
How decisions are made about what to produce, how to produce and who is to benefit from the goods and services provided depends upon…
the nature of the economic system
Market economy
an economy in which goods and services are purchased through the price mechanism in a system of markets
Command/ planned economy
an economy in which government officials or planners allocate economic resources to firms and other productive enterprises
Mixed economies
an economy that contains both a large market sector and a large no-market sector in which the planning mechanism operates
Most of the goods we consume must first be produced. This requires…
the use of economic resources
These goods are scarce in relation to demand, which gives rise to…
the need for rationing and economising in their use
Production
converts inputs or factor services into outputs of goods and services
Capital good
a good which is used in the production of other goods or services
Consumer good
a good which is consumed by individuals or households to satisfy their needs or wants
Factors of production
inputs/ economic resources into the production process, such as land, labour, capital and enterprise
Environmental resources comprise all the natural resources that…
are used or can be used in the economic system
Renewable resource
a resource that can be renewed as it is used
Non renewable resource
a resource which is scarce and runs out as it is used
The basic economic problem is…
scarcity
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
Scarcity
people have unlimited wants but resources to meet these wants are limited
