Introduction To Economics Flashcards
Define positive statement
Statements capable of being verified or refuted by resorting to fact or further investigation
Define normative statement
Statements that contain a value judgement which cannot be verified by resort to investigation or research
Define economic good
A good or service that has a benefit to society, they have a degree of scarcity and therefore an opportunity cost
Define free good
A good with no opportunity cost as it is abundant. They cannot be traded as nobody wants to buy them. E.g. air, sea water, etc
What’s the basic economic problem?
How to allocate scarce resources given unlimited wants
What are the factors of production? Give examples and incentives
Capital (machines, tools, factories) interest
Enterprise (entrepreneurs) profit
Land (includes natural resources) rent
Labour (workers) wage
Define opportunity cost
The cost of the next best alternative foregone when a choice is made
Being on the PPF is what type of efficiency?
Productively
Pareto
What’s productive efficiency?
When resources are used to give the maximum possible output at the lowest possible cost (helps maximise consumer welfare, but can be wasteful if the goods and services want are not produced)
What’s allocative efficiency?
When resources are allocated to the best interests of society, where there is maximum social welfare and maximum utility
What conditions are required for productive efficiency?
Only occurs when firms minimise their average total costs (lowest point on the AC curve, MC=AC)
What conditions are required for allocative efficiency?
Occurs when resources are distributed to the goods and services that consumers want. It exists at P=MC, free markets are considered to be allocatively efficient
What shifts the PPF curve outwards?
An increase in the quantity or quality of resources (supply side policies)
Define capital goods
Goods which can be used to produce other goods, such as machinery
Define consumer goods
Goods which cannot be used to produce other goods, such as clothing
