1.1. Nature of Economics Flashcards
(42 cards)
What is the main focus of economics as a social science?
Explaining how the economy works by developing and testing models, like supply and demand.
What is the difference between a theory and a model in economics?
The terms are often used interchangeably, but models are usually expressed in mathematical terms for greater precision.
What is the purpose of using ‘ceteris paribus’ in economic models?
It simplifies models by assuming all other factors remain constant, isolating the impact of a specific variable.
Why is it difficult to conduct scientific experiments in economics?
Economics is a social science, making it difficult to control variables in the real world.
Define a positive economic statement.
An objective statement that can be tested and proven or disproven.
Give an example of a positive economic statement.
“Raising taxes will lead to an increase in tax revenue.”
Define a normative economic statement.
A subjective statement based on opinion and value judgements, which cannot be proven or disproven.
Give an example of a normative economic statement.
“The government should increase taxes.”
How are positive and normative statements related in economic decision-making?
Economists often use positive statements to support normative statements.
What is the fundamental economic problem?
Scarcity: infinite wants exceeding finite resources.
What does scarcity mean in economics?
Resources are limited relative to the demands placed upon them.
What are the three basic questions economies try to answer?
What to produce, how to produce it, and for whom production should take place.
What is a renewable resource?
A resource that can be replenished at a rate equal to or greater than its consumption.
Give an example of a renewable resource.
Solar power, oxygen, or fish (if managed sustainably).
What is a non-renewable resource?
A resource that cannot be readily replaced by natural means at a rate equal to its consumption.
Give an example of a non-renewable resource.
Fossil fuels like coal, oil, and gas.
Define opportunity cost.
The cost of one choice in terms of the next best alternative foregone.
What is a production possibility frontier (PPF)?
A curve showing the maximum possible combinations of two goods an economy can produce with its current resources and technology.
What does a point on the PPF represent?
The maximum productive potential of the economy.
How does a PPF illustrate opportunity cost?
Moving along the curve shows the trade-off between producing more of one good versus another.
How does economic growth affect the PPF?
Economic growth shifts the PPF outwards, indicating an increase in potential production.
What does a point inside the PPF indicate?
Inefficient allocation of resources.
What does a point outside the PPF indicate?
Unobtainable production with current resources and technology.
How does a change in technology affect the PPF?
It can shift the PPF outward, especially if the technological advancement improves the production of both goods. If the technological advancement only affects one good, the PPF will expand in that direction.
