1 - Economic Methodology Flashcards
Why do Economic choices have to be made?
You have unlimited needs and wants, but not unlimited resources.
What happens if we assume people behave rationally?
We assume people will make life decisions based on maximising their opportunities.
What do PPF diagrams show?
How efficient a business is, or what the economy can produce, when all factors of production are used to their full capacity.
What is technical progress?
New and better ways of making goods, new techniques for producing more output from scarce resources.
What do the x and y axes show on a PPF diagram?
X axis - Quantity of good B. Y axis - Quantity of Good A.
What does point A represent on a PPF diagram?
The maximum quantity of Good A is produced, and none of Good B.
What does Point D represent on a PPF digram?
The maximum of Good B being produced, and no Good A.
What is there along the curve from A to D?
A mixture of both being produced - productive efficiency.
What does Point F show on a PPF diagram?
It’s currently unachievable, with the current resources available, but can be aimed for in the future, with increasing resources.
What does point E show?
Productive inefficiency - not all resources are being efficiently used.
Which factors cause outward shift of the PPC?
Technological improvements, Increase in working population, improved quantity of labour, discovery of new resources.
Which factors cause inward shift of the PPC?
Natural disasters, Climate change, A prolonged recession.
What is the law of diminishing utility?
As the quantity consumed increases, marginal utility found in each additional unit decreases.
What happens when MU=O?
Total utility is maximised.
What does the diagram to show total utility represent?
Total utility increases at a diminishing rate, until a maximum is reached, and then decreases.
