Topic 1 : Economic Methodology and the Economic Problem Flashcards
What is a need?
What individuals require for basic survival. e,g food, water, and shelter.
What is a want?
Desires beyond the basic needs. These add to the Quality Of Life.
Why are wants unlimited?
- New products emerge.
- Replacing goods after they had been worn out.
- Greed.
- Change in consumers’ tastes. e.g., fashion.
What is the basic economic problem?
Infinite wants and scarce resources.
What is the definition of Economics?
The study of how to allocate scarce resources in the most effective way in order to meet individuals’ needs and wants.
What are the factors of production?
- Capital; man-made resources
- Enterprise; entrepreneurs
- Labour; workers
- Land; natural resources
Define the term ‘opportunity cost’
Benefits forgone from the next best alternative.
Define the term ‘scarcity’
Resources or goods are limited in relation to human wants and needs.
What is the basic economic problem facing all societies?
- What to produce.
- How should they be produced?
- Why should these products be produced?
What is a positive statement?
Is one that can be tested, it is factual. (objective)
What is a normative statement?
It is based on an opinion, it cannot be tested. (subjective)
Define ‘value judgments’
Personal views, feelings and attitudes.
Define ‘moral judgments’
What is deemed to be right or wrong by society.
Define ‘political judgments’
Decisions that appeal to selected groups of people.
What are the main causes of an outward shift in the PPF curve?
- Higher productivity/efficiency of factor inputs.
- Better management.
- Increase in capital and labour supply.
- Innovation of new products and resources.
- Discovery of new natural resources (land)
What are the main causes of an inward shift in the PPF curve?
- Damaging effects of natural disasters.
- Loss of factor inputs caused by conflict/war.
- Large-scale net outward labour migration (economic depression)
- A trend decline in the productivity of inputs (persistent recession)
What is productive efficiency on a PPF curve?
Any point on the curve.
What is ‘Pareto’ efficiency?
To make something better of, something has to be made worse of.
What is ‘Allocative’ efficiency?
Economic resources are utilised to produce a combination of goods and services that maximise economic welfare.
What does a PPF show?
The different combinations of two goods that can be produced using full employment of resources.
Define ‘Ceteris paribus’
Holding other things constant.
Why is the PPF curve, not a straight line?
If it was a straight line then it assumes all factors of production (resources) are perfectly transferable.
(this means that a factory worker who has been made redundant can be a surgeon)
