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Economics 1: Microeconomics > Economic methodology and the economic problem > Flashcards

Economic methodology and the economic problem Flashcards

1
Q

what is economics

A

a social science

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2
Q

what is economic methodology

A

the study of how the world’s scarce resources are allocated to competing uses to satisfy society’s wants

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3
Q

what is a positive statement

A

it is objective, it can be tested against facts to be true or false

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4
Q

what is a normative statement

A

it is a subjective opinion, value judgement, it cant be declared true or false

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5
Q

what do positive and normative statements do

A

they concerns views about what individuals, govt and firms should do based on ethical, moral and political standpoint/ POV

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6
Q

what does economic policy rests on

A

economic policy rests on normative judgements about the ‘right’ level of minimum wages, amount of govt intervention in markets and taxes

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7
Q

what is the main purpose of economic activity

A

to satisfy society’s needs and wants

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8
Q

what is a need

A

what humans need to survive e.g. food, shelter, and warmth

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9
Q

what is a want

A

something that people feel improves their standard of living but is not essential to survive

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10
Q

what is economic welfare

A

the standard of living or general well-being of people in society
and satisfying society’s needs and wants in terms of material and non material things

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11
Q

what does increased economic welfare lead to

A

increased economic welfare leads to happiness

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12
Q

what happens with an increase in real GDP per capita

A

increase in real GDP per capita lead to and increase in living standards as this enables people to satisfy more of their needs and wants

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13
Q

what is an economic resource

A

a country’s productive economic resources
the 4 factors of production: CELL
land, labour, capital, enterprise

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14
Q

what is a factor input

A

land, labour, capital, enterprise

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15
Q

what is capital

A

a man made physical equipment used to make other goods and services e.g. machinery, computer equipment
fixed capital: machinery, plants, equipment, technology, buildings, factory
physical: drilling equipment

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16
Q

what is the reward for capital

A

interest

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17
Q

what is enterprise

A

an entrepreneur is an individual who takes business risk to combine the other 3 factors of production to produce a good/service (usually invest in their own capital)

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18
Q

what is the reward for enterprise

A

profit

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19
Q

what is land

A

all natural occurring resources available for production (minerals, sea, fertile land, the environment, fish)
non renewable and renewable resources

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20
Q

what is the reward for land

A

rent

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21
Q

what is labour

A

people involved in production (human capital)
quality and quantity

22
Q

what is the reward for labour

A

wage

23
Q

what is a good/ services

A

those products that are directly consumed by individuals to satisfy their desires

24
Q

what is factors of production

A

elements required to produce desired output

25
Q

what is a free good

A

it isn’t used up in consumption
(fresh air, oceans)

26
Q

what is an economic good

A

scarce/ in consumption

27
Q

what do economists do

A

economists specialised in sustainable development focus on the impact of economic growth on our resources

28
Q

what is scarcity

A

economic resources = limited, relative to society’s wants
it means choices have to be made when deciding how to allocate these resources
leads to 3 fundamental economic questions (what, how, who)

29
Q

what are the 3 fundamental economic questions

A
  1. what to produce and what quantities?
  2. how should goods/services be produced
  3. who should it be allocated to
30
Q

what is ‘what to produce and what quantities’

A

goods:
capital goods - used to produces other goods (machinery, IT equipment)
consumer goods - gives satisfaction to consumers

31
Q

what is ‘how should goods/services be produced’

A

decision between labour-intensive methods or capital-intensive
labour- intensive: high proportion of human capital compared to capital

32
Q

what is ‘who should it be allocated to ‘

A

this choice affects the degrees of equity and equality in society
decisions about who in society gets what which is determined by the prevailing economic system

32
Q

what are the 2 extreme forms of economic system

A

the free market/ capitalist economy
the command or centrally planned economy

33
Q

what the the free market/ capitalist economy

A

decisions are made solely by the interactions of consumers and firms ( no government interventions)

34
Q

what is the command or centrally planned economy

A

decisions are made solely by the planning departments of governments

35
Q

what is opportunity cost

A

the cost of the next best alternative that you give up when you have to make a choice
(in making any choice regarding how to allocate scarce resources something must be given up)

36
Q

what is a production possibility diagram (PPC/PPF/PPB)

A

a PPC is a diagram showing the max possible output combinations of 2 goods in an economy, assuming all resources are fully employed and used efficiently

37
Q

draw a PPC diagram

A
38
Q

explain the PPC diagram

A

any point on it (X,Y,Z) implies that all FOP’s are fully employed/ efficient which means their productively efficient
any economy at point V is operating inefficiently which means theirs unused resources, unemployed labour, idle machinery

39
Q

what leads to shifts to the PPC

A

factors leading to shifts (outwards or inwards) are driven by changes in quantity of FOP’s and efficiency (quality) of FOP’s

40
Q

what are the factors that cause outwards shifts to the PPC

A
  1. technological improvements leas to increase productivity of capital equipment
  2. new resources discovered (e.g. oil,gas)
  3. improvements in education/training lead to more productive workforce
  4. changes that leads to increase in working population (e.g. increase in immigration, raised retirement age)
41
Q

what are the factors that cause inward shifts to the PPC

A
  1. disasters (e.g. flood, earthquake) which devastates productive resources
  2. wars
  3. global warming/ climate changes which leads to a loss of farmland, increase in sea levels and extreme weather
  4. prolonged recession which leads to permanent loss of productive capacity (businesses closed down, workers lose skills)
42
Q

draw a PPC diagram to show opportunity cost

A
43
Q

explain how does the PPC diagram show opportunity cost

A

as more capital goods are produced, it means more consumer goods are given up
an increase in the amount of capital goods from OM to OS leads to a loss of output from OL to OR
an increase in production in capital goods from OS to OV leads to a proportionally larger fall in production of consumer goods from OR to OT

44
Q

draw a PPC diagram to show economic growth

A
45
Q

explain how does the the PPC diagram show economic growth

A

the economy producing at point A leads to improvements in technology or any factors leading to an outward shift which leads to an increase in productive capacity of economy
entire PPC shifts outwards so production at point E (possible now) leads to an increase in the potential output of both capital and consumer goods

46
Q

what is economic growth

A

an increase in the productive capacity of an economy overtime

47
Q

what is short run

A

shows an economy making fuller use of its existing, previously unemployed resources

48
Q

what are the 2 types of economic efficiency

A

productive and allocative

49
Q

what is productive efficiency

A

when max output is produced from the available FOP’s
not possible to produce more of 1 good or service without producing less of another
concerned with how well society uses it’s scarce resources to maximize outputs of goods and services
at the level of the whole economy productive efficiency only occurs when max output (produced from FOP’s) (any point of PPC)

50
Q

what is allocative efficiency

A

when economy’s FOP’s are used to produce the combo of goods and services that maximises society’s welfare (meets exact wants/needs)
the allocatively efficient point on the PPC is the one that bests reflects society’s preferences for particular goods and services

51
Q

draw PPC diagram to show economic efficiency

A

Economics 1: Microeconomics (8 decks)

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