Econmic Methodology Flashcards
Positive statements
Objective statements that can be tested against evidence
Normative statements
Subjective statements (based off opinion) that carry value judgements
What are economic choices based off
Political judgements
Short-term outcomes
Moral judgements
Normative statements
Define Ceteris Paribus
All other things being equal
Foundations of economic decisions
What we produce
How we produce
Who we produce for
Define labour force
Total population that can work
Define capital
Equipment used to generate goods and services within production process
Define human capital
Value human labour brings to production process
Describe economic agents
Decide how to allocate resources based off various incentives
Main economic agents
Producers
Government
Consumers
Issues with opportunity cost
- not all factors have alternatives
- difficult to switch factors for another use
- agents may lack info on alternatives
Describe a PPF
Production possibilities frontier
Economic growth= shifts outwards
= can be caused by better technology
Static efficiency
Economy can’t increase production of one good without decreasing production of another good
= point at which all resources are being used in most efficient way
Allocative efficiency
When all goods and services meet needs and wants of society
Productive efficiency
Producing goods with optimal combination of inputs to produce maximum output for minimal cost
