Economic Methodology And The Economic Problem Flashcards
(23 cards)
What is Economics?
A social science that studies how resources are allocated.
What is the difference between Microeconomics and
Macroeconomics?
Microeconomics studies the behaviour of individuals and groups in society whereas Macroeconomics looks at the economy as a whole studying economic behaviour at a state level
How is Economics similar to natural sciences?
Both use data to inform decisions
Both use statistics to find trends
Both use modelling
How is Economics different to Natural Sciences
No controlled experiments as factors cannot be controlled
Economics is harder to predict as it is focused around human behaviour
What does Ceteris Paribus mean?
The assumption that all other factors are held equal or constant ensuring they are control variables. It helps isolate factors.
What are Positive statements?
Objective statements that can be tested and evaluated. They do not express any sort of information.
POSITIVE = TRUE
What are Normative statements?
Subjective statements which are likely to have been influenced by an opinion or feeling. They cannot be tested.
NORMATIVE = HEARSAY
What is the central purpose of economics
The production of goods and services to satisfy needs and wants
What are the Factors of Production
CELL
Capital - man made resources that aid production
Enterprise - taking risks and organising production
Labour - the human input into production
Land - the stock of natural resources
What are renewable resources?
Natural resources that can be replenished, reused or replaced over time (if the rate of extraction is less than the natural rate of the resource regenerating).
What are non-renewable resources?
Resources which are ultimately finite in supply and cannot be replenished.
What are common pool resources and the tragedy of the commons?
Common Pool Resources -
Resources that are jointly used by groups of people such as public parks.
Tragedy of the Commons -
The idea that individuals tend to overuse or abuse common pool resources as they are shared not owned.
What is the economic problem?
Infinite wants and finite resources.
Scarcity - choices have to be made about how resources are allocated causing opportunity costs.
What is an opportunity cost?
The benefit of the alternative decision which was sacrificed.
The cost of NOT choosing the second best alternative.
What does a PPF illustrate?
The maximum output of two goods or services that an economy can produce assuming full utilisation of resources and a fixed level of technology.
What are diminishing marginal returns?
Employing an additional factor of production causes a relatively smaller increase in output. There will come a point where one variable is increased to such an extent that it becomes less productive.
What is Productive Efficiency?
When the economy is producing at the lowest possible cost.
This is achieved when it is operating ALONG the PPF curve.
What is Allocative Efficiency?
When an economy is producing a combination of goods and services that align with consumer preferences and social needs maximising satisfaction and utility.
What is Dynamic Efficiency?
The economy’s ability to grow and expand its production possibilities over time and involves shifting the PPF outwards.
What can businesses do to shift the PPF outwards?
Improve Q2CELL
Improve the Quantity and Quality of factors of production (CELL)
How can Quantity of Factors of Production be increased?
Increased availability of labour through immigration
Increased incentives to attract foreign based investment
Increased ability of land through land reclamation
How can Quantity of Factors of Production be increased?
Increased education and training for labour
Invention of new technology
Improved infrastructure
What shifts the PPF inward?
Damage to capital (outdated technology or natural disasters)
Lower Productivity (Workers lose skills due to a lack of education or training)
Reduction in resources (Lose a significant portion of its workforce to health crisis or emigration)
