Central Problem of Economics Flashcards
(16 cards)
What is a positive statement?
A statement of fact. May be right or wrong , but its accuracy can be tested or verified by appealing to the facts.
what is a normative statement?
statement of value or opinion. Often subjective, what ought to be or not. Key winds include’ could’,”should’.
what is scarcity?
problem that arises from limited resources and unlimited wants.
What are the factors of production?
CAPITAL: physical capital, man-made resources like machines, factories, transportation and other equipment.
ENTREPRENEURSHIP: the one who manages all other FOPs, innovates new products and methods of production, taking risks of being in business.
LAND:refers to all natural resoruces available, renewable/non-renewable
LABOUR: human capital, refers to the people, including thier skills and abilities.
Define opportunity cost.
Oppourtunity cost is the benefits from the next best alternative that is forgone.
Explain the link of explicit/non-explicit cost to opportunity cost
Opportunity cost may include explicit/non-explicit cost:
Explicit cost:cost that require direct money payment
Non-explicit cost: cost that dont require a direct monetary payment such as time.
What is the marginalist principle?
Weighing the marignal benefits and marginal costs of an activity to achieve their aim (maximise utility/profits or social welfare)
Rational decision making occurs when the economic agents undertakes an activity it the marginal benefit is at least as great as marginal costs
Explain the Law of Diminishing Marginal Utility
As the consumer becomes more satisfied, each additional unit of the good consumed will give less additional utility than previous units.
Explaing the Law of Diminishign Marginal Returns
When increasing amounts of variable factor of production are used with a given amount of a fixed factor, ther will come a point when each extra unit of the variable factor will produce less extra output than the previous unit.
3 economic questions:
1. What and how much to produce?
2. How to produce?
3. For whom to produce? How will the total output be distributed among members of the society?
- Choices need to be made on what goods and services get to be produced and in what quantities.
- Most goods can be produced by a variety of methods with varying combinations of resources
Describe what is the PPC curve?
PPC shows all the maximum attainable combinations of two goods that a country can produce within a specified time period with all its resources fully and efficiently employed, at a given state of technology.
How does the PPC show scarcity?
Scarcity is illustrated by the country only being able to produce at one of the points on the curve or within the PPC at a given point. The country also cannot produce at a point outside of the curve.
How does the PPC show choice?
Countries may choose to produce at only one point along the PPC. (cannot produce 2 pts at the same time)
How does the PPC show opportunity cost?
The negative gradient shows opportunity cost. (it is concave to the origin. as more of good A is produce, the opportunity cost of expanding output of good A measured in terms of forgone units of good B)
This is because resources in an economy are not perfectly suited to the production of both goods.
What is actual economic growth and how does the PPC show it
Actual economic growth is the increase in real national output
It is illustrated by the movement of a point within the PPC to a point on the PPC.
What is potential economic growth and how
