Y12 Booklet 1: Methodology, Production & Basic Economic Problem Flashcards
What is Economics?
the allocation of scarce resources, a social science
Why are experiments difficult in Economics?
often immoral or impractical, less ability to control external factors
What is “ceteris paribus”?
Assuming all else stays the same
What is utility?
The benefit gained from consuming a product
What is a “rational utility-maximiser”?
A theoretical person who makes every decision using logic, to maximise their own utility
What is the “cost-benefit principle”?
When an estimated cost is compared to an estimated benefit, to make decisions
Why might some people not maximise their own utility?
- habits & instincts
- moral/political/religious beliefs
- altruism
- short-term > long-term
What are the 3 economic agents?
- Consumers (households)
- Firms (businesses)
- Governments
What is a “Positive Statement”?
a statement which is objective and verifiable through experiments
What is a “Normative Statement”?
A statement that is subjective, opinionated, unverifiable and based on a Value Judgement
What is the “Basic Economic Problem”?
There are unlimited human wants/needs, but limited resources to meet these with, with competing uses
What is a “scarce” resource?
A resource where there is not enough supply to satisfy demands - NOT just a small supply
What are the different types of economy? + examples
Free Market - USA - resources allocated through markets (consumers & firms)
Mixed - UK - resources allocated through combination
Planned - Cuba - resources allocated by government
What is “Initial Factor Endowment”?
The amount of factors of production an economy/firm possesses for production
What are the 4 factors of production? + meanings
Capital - a man-made aid to production
Enterprise - a combination of the 3 factors, with financial risk, that decides what/how/how much of a product to produce
Land - “gifts of nature” & natural resources
Labour - physical/mental effort from a person
What is the purpose of all economic activity?
To provide services/goods which satisfy human wants/needs
What are the 4 types of production output?
(D) - Consumer durables - household goods which can be used repeatedly
(C) - Capital - goods which aid more production of other goods
(N) - Consumer non-durables - household goods which can be used only a finite number of times
(S) - Services - buying a person’s time or expertise
What is a trade-off?
The choice to improve a variable, leading to the deterioration of another variable
What is opportunity cost?
The benefit foregone by making an alternate decision. ONLY the lost benefit of the 2nd best choice, NOT all possible choices combined
