Economic Methodology

Question 1

Positive Economic Statements

Answer 1

objective statements that can be tested against facts to be declared either true or false (don’t have to be true)

Question 2

Normative Economic Statements

Answer 2

subjective opinions / value judgements, can’t be tested against facts -economic policy relies on normative eg taxes mimimum wage

Question 3

Opportunity cost?

Answer 3

the cost of the next best alternative that you give up when you have to make a choice

Question 4

PPF?

Answer 4

shows the maximum possible output combinations of two goods in an economy, assuming full and efficient employment of resources

Question 5

POINTS ON PPC:

Answer 5

-Any point on the PPC = FoP are fully employed- Within the ppc = economy operating inefficiently with unused resources

Question 6

What causes outward shift in PPC

Answer 6

increase in quantity and quality of FoP

Question 7

Factors causing an outward shift of PPC

Answer 7

1) Technological improvements2) Discovery of new resources3) Improvements in education + training

Question 8

Factors causing an inward shift of PPC

Answer 8

1) Natural Disasters2) Global warming / climate change3) Prolonged recession (workers lose skills)

Question 9

Productive Efficiency?

Answer 9

when maximum output is produced from the available FoP and when it is not possible to produce more of one good or service without producing less of another

Question 10

Allocative Efficiency?

Answer 10

when an economy’s FoP are used to produce goods and services that maximise society’s welfare-PPC doesn’t specify an allocatively efficient point