Economic methodology Flashcards
What type of science does economics fall under?
the social sciences
What is the central purpose of economic activity
the production of goods/services to satisfy the needs and wants of society (supply and demand)
What are the three economic decisions
what to produce
how to produce it
who benefits from the good/services produced
Factors of production
What are the rewards/incentives for each factor?
Land - rent
Labour - wages
Capital - interest from investment
Enterprise - profit
What is the fundamental economic problem
how to best allocate scarce resources to satisfy the unlimited wants of society
What do Production Possibility Frontier diagram show (PPF)?
the maximum productivity potential of an economy using a combination of two goods when resources are fully and efficiently employed
can show the opportunity cost of using scarce resources e.g if milk is scarce you have to choose between producing cheese or yogurt
What does the outward shift of a PPF curve show?
a growth in the production possibility
What causes an outward shift of a PPF curve?
innovations in tech, productive potential increases, trade and increase in factor resources
What does the inward shift of a PPF curve show?
a decline in the production possibility
What causes an inward shift of a PPF curve?
natural disasters, war, large scale migration of people out of a country and long term fall in productivity of labour
