Basic Concepts Flashcards
What is economics?
Economics is the study of human behaviour in using
scarce resources to satisfy unlimited wants.
Why does the fundamental economic problem exist?
The fundamental economic problem exists because
both goods and the resources needed to produce the
goods are scarce.
What type of science is economics?
Economics is a social science
What is the first step of the methodology?
Observe behaviour in the market
What is the second step of the methodology?
Form a hypothesis to explain the behaviour.
What is the third step of the methodology?
Developing predictions from the hypothesis.
What is the final step of the methodology?
Use evidence (empirical data) to test the predictions.
How to avoid the problem of variables?
Ceteris Paribus
Positive economics is?
Facts and cause-and-effect
relationships are used to describe
and explain economic phenomena.
The focus is on developing and
testing economic theories based on
facts.
Normative economics is?
This concerns what economic outcomes
ought to be. It studies public policies and
economic issues, and give opinions and
value judgments on them. Value
judgements influence decision-making
and government policy.
What is a positive statement?
Positive statements are objective
statements that can be tested by
referring to the available evidence.
What is a normative statement?
Normative statements are subjective statements which contain a value judgement - they are opinions.
How can economic decisions be affected?
It may be affected by moral judgement, different
values and beliefs, political aims.
What is a need?
Something people have to have, i.e. basic needs in
life and is essential for survival
What is a want?
A want is something people would like to have but which is not essential to life. Can be material or non-material.
When does economic welfare improve?
Economic welfare (happiness / utility) improves when
people’s needs and wants are satisfied.
What are human wants?
Human wants are unlimited and can never be fully satisfied. When a particular want has been satisfied, new wants emerge.
How are goods and services produced?
All goods and services are produced from scarce economic
resources.
What are factors of production?
Factors of production are inputs into the production process
and are converted into output of goods and services.
What are the two types of good?
These goods can be consumer goods for consumption or
capital goods for that are necessary for the production of
consumer goods.
Four Factors of Production?
Land, Labour, Capital, Enterprise
Why do we have to make choices?
Because of scarcity, we have to make choices. When we
choose something, we have to give up something else. There is a cost in making our decisions.
What is opportunity cost?
Opportunity cost is the next best alternative that have
to be forgone.
When does cost change?
Cost will change only if there is a change in the next
best option forgone
