Topic 1.1: Economic methodology and the economic problem Flashcards
What are positive statements?
Statements that are objective and can be tested, and from this can be rejected or accepted
What are normative statements?
They can be value judgements, and are subjective and based on opinion rather than factual evidence
What is allocative efficiency?
When economic resources are utilised to produce the combination of goods and services that maximise economic welfare
Allocative price function
Price allocates resources away from markets with excess supply to markets with excess demand
What is meant by ceteris paribus?
All other factors remain the same
What is meant by economic welfare?
The study of how allocation of resources and goods affects social welfare
What are the FOP’s and give a description of each?
Capital: Physical - goods which can
be used in the production process Fixed - Machines, buildings, consumer goods
Enterprise: Managerial ability. someone who takes risks,
innovates + uses the FOP’s
Resources are drawn together into the production process
Land: Natural resources or physical space for fixed capital
Labour: workforce of the economy
What is the basic economic problem?
Infinite wants and needs but finite resources. Resources have to be used and distributed optimally
What is opportunity cost?
The loss of the benefit/value from the next best option
What is meant by PPF(‘s)?
Production possibility frontiers depict the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully
and efficiently employed.
What is meant by trade off?
range of alternatives
What is investment goods?
those that produce a stream of income in the future e.g. capital goods - machinery
Return on investment
What is consumption goods?
those that produce a stream of income today e.g. a car for personal use
What are capital and consumer goods?
Capital goods are goods which can be used to produce other goods, such as machinery
Consumer goods are goods which cannot be used to produce other goods, such as clothing
What is productive efficiency?
When resources are being used to their productive potential
