4.1.1 Economic Methodology and the economic problem Flashcards
(35 cards)
Why is economics considered a social science?
Because it looks at the behavior of humans and their use of scarce resources.
In what way is economic methodology similar to other sciences?
The use of simplifying assumptions such as cetris paribus, and the testing of theories and models against relevant known facts.
What is the ceteris paribus?
“All other things remaining equal” is an assumption used to make looking at the relationship between two factors easier.
What is a normative statement and give an example.
A normative statement is one that contains a value judgement, an opinion. An example is “The use of cars should be banned.”
What is a positive statement and give an example.
An objective statement that can be tested against facts. An example would be “500 people die every year to sharks” it does not matter if its true or not.
What are three things someone might base a decision on?
Moral views, short-term positive consequences and political judgement.
How might a decision be influenced by a political judgement?
Lowering taxes may win votes however once the election is won the government won’t have as much spending power.
Why is choice an important element in the economic problem?
Limited resources have different applications so a choice must be made of where to allocate the resources.
What are the four factors of production?
Capital, Enterprise, Land and Labor.
What is the economic problem?
How can scarce resources be used to satisfy people’s infinite need and wants as effectively as possible?
What does the existence of scarcity imply?
That individuals must make choices.
What’s an example of an economic consumption activity?
Someone enjoying the flowers in a public park.
What’s one reason that the free market fails to achieve optimal allocation of resources?
Because there is underproduction of goods with positive externalises.
Define scarcity?
Limited quantities of resources to meet unlimited wants
What is an example of a scare resource and why?
Demand for water, food, energy, land and minerals is rising substantially, making natural resources increasingly scarce and more expensive. Hence the environment is a scarce resuly.
What is the fundamental economic problem?
how best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare
How do choices have an opportunity cost?
trading off the expected value of one opportunity against the expected value of its best alternative.
What is the central purpose of economic activity?
The production of goods and services to satisfy needs and wants.
What are the key economic decisions?
what to produce, how to produce, and who is to benefit from the goods and services produced.
What is a production possibility diagram?
A diagram that shows the options available when you consider the production of just two types of goods or services.
Define the term “trade-off”.
A trade-off occurs when you have to choose between conflicting objectives.
What is an opportunity cost?
An opportunity cost is the second best thing you have given up to have the “best thing”.
What might cause an outward shift on a PPF?
Improved technology, improvements to labour (Economic growth)
Innovation
Discovery/ extraction of new resources
Better management of factors imports
What might cause an inward shift on a PPF?
Natural disasters (Negative economic growth)
A trend in decline in productivity
large scake net outward labour migration
