1.1 - Nature of Economics Flashcards
What does Ceteris Paribus mean?
All other things remaining equal. It is an assumption used by economists.
Why is there an inability in economics to make scientific experiments?
Rather than proving the relationship between two variables through experiments, economists do this through the use of simplified models. This is because testing in real life is almost impossible due to an infinite amount of variables that could come into play.
Positive Statement Definition
Positive statements are objective. They can be tested with factual evidence, and can consequently be rejected or accepted
Normative Statement Definition
Normative statements are based on value judgements. These are subjective and
based on opinion rather than factual evidence. They cannot be tested with factual evidence.
How can value judgements influence economic decisions?
Value judgements can influence economic decision making and policy. Different
economists may make different judgements from the same statistic
Economic Problem Definition
There are unlimited wants and only finite resources, therefore there is a problem of scarcity and economic agents must decide where to allocate these resources
Renewable Resource Definition
A renewable resource is resource of economic value that can be replenished or
replaced on a level equal to consumption
Non-Renewable Resource Definition
A non-renewable resource is a resource of economic value that cannot be readily
replaced by natural means on a level equal to consumption. Rate of consumption is higher than the rate of replenishment.
Scarcity Definition
Scarcity exists because resources are finite whereas wants are infinite.
Factors of production Definition
Land, labour, capital and enterprise/
Opportunity Cost Definition
The benefits of the next alternative foregone when an economic choice is made.
Economic goods definition
Created from resources in limited supply and therefore they command a price
Free goods definition
Unlimited supply such as sunlight or wind and therefore consumption by one person does not limit consumption by others. Therefore there is no price and the opportunity cost of consuming a free good is zero.
Production Possibility Frontier
A curve that illustrates the maximum potential output of an economy when all resources are fully employed.
