The nature of Economics Flashcards
what does ceteris paribus mean?
“all things being equal”
the assumption that, whilst the effects of a change in one variable are being investigated, all other variables are kept constant.
why is there an inability in economics to make scientific experiments?
It is difficult to set up experiments to test hypothesis. Economics measures behavior which is unpredictable.
what is a positive statement?
positive statements are objective statements based on evidence or facts, which can, therefore be proven or disproven.
what is a normative statement?
normative statements are subjective statements based on value judgements and cannot be proven or disproven.
how do value judgements influence economic decision making?
this is where economists use positive statements to back up normative statements. Different
economists may make different judgements from the same statistic.
why does scarcity exist?
exists because resources are finite whereas wants are infinite.
what is the problem of scarcity?
all societies face the problem wants are infinite but resources are limited in supply. this is the underlying reason for the problem of scarcity. therefore decisions must be made.
what are the 3 questions society will have to face as a result of scarcity?
- what to produce?
- how to produce?
- who consumes what is produces, how to allocate goods/services?
what does CELL stand for?
Capital
Enterprise
Land
Labour
what are factors of production?
resources that include land, labour, capital and enterprise
what is land?
includes all natural resources, raw materials, the fertility of the soil and resources found in the sea
what is labour?
refers to those involved in the production of goods and services and includes all human effort both physical and mental.
what is capital?
any man-made aid to production including factory buildings, offices, machinery, IT equipment to make other goods and services.
what is enterprise?
performs 2 tasks:
- bringing together the other factors of production so that goods and services can be produced
- taking risks involved in production
what are renewable resources?
can be replaced naturally after use, stock levels can be maintained at a certain level e.g. solar energy, wind power
what are non-renewable resources?
resources which will be eventually be completely depleted, continued consumption will eventually lead to their exhaustion
what is opportunity cost?
the next best alternative that is foregone when a choice is made
what is an economic good?
are created from resources that are limited in supply and so are scarce, consequently commanding a price.
what is a free good?
are unlimited in supply e.g. sunlight. consumption by 1 person does not limit consumption by others. therefore, opportunity cost of consuming a free good is 0
what is the production possibility frontier (PPF)?
it illustrates the maximum potential output of an economy when all resources are fully employed
what are capital goods?
those required to produce other goods both capital and consumer
what are consumer goods?
those that give satisfaction (or utility) to consumers e.g. smartphones, cars, fast food
