Flashcards in Economics Methodology Deck (22):
What are assumptions in economics?
Assumptions are initial conditions made before a micro or macroeconomic analysis is made.
What is the ceteris paribus assumption?
All other influencing factors are held constant.
What are positive statements?
Positive statements are objective statements that can be tested, amended or rejected by referring to the evidence.
What are normative statements?
Normative statements are subjective statements, they are generally judgement's and opinions
What are the four economic resources?
What are capital goods?
Goods that are used to make consumer goods and services.
What are capital inputs?
Capital inputs include plant and machinery, hardware, software, new factories and other buildings.
What are free goods?
A free good has zero opportunity cost in its supply
What are non-renewable resources?
Non-renewable resources are finite in supply, the rate of extraction of finite resources depends on the current market price.
What are renewable resources?
Renewables are replaceable if the rate of extraction is less than the natural rate at which a resource renews.
E.g. Solar Energy, Tidal Power, Oxygen
What is opportunity cost?
Opportunity cost measures the cost of a choice expressed in terms of the next best alternative foregone.
The opportunity cost of deciding not to work an extra ten hours a week is the lost wages given up.
What is Rationing?
Rationing is one way of allocating scarce goods and services when market demand exceeds available supply.
How can you ration scarce resources?
By Market price
By Consumer income
What does a PPF show?
The maximum potential output combinations of two goods an economy can achieve when all its resources are fully and efficiently employed.
What is the law of diminishing marginal returns?
States an increasing number of new employees causes the marginal product of another employee to be smaller than the marginal product of the previous employee at some point.
What is the opportunity cost in a straight line PPF?
A straight line PPF has a constant marginal opportunity cost when switching between consumer and capital goods.
What is Allocative efficiency?
Is at an output level where the price equals the Marginal Cost (MC) of production
What is productive efficiency?
Production efficiency is an economic level at which the economy can no longer produce additional amounts of good without lowering the production level of another product.
What can cause an inward shift of a country's PPF?
War, (Destruction of factor inputs)
Outward labour migration
Trend decline in productivity
What can cause an outward shift in PPF?
Improved management (Less wastage)
Increase in labour supply
Innovation of new products or production processes
Discovery of new natural resources
What is resource depletion?
This is a decline in the stock of resources available, for example arising in long run from the effects of de-population, climate change and low rates of investment.