key vocab for economic methodology Flashcards
(33 cards)
What is a positive statement?
A statement that does not include a value judgement and can be tested against the facts or evidence.
What is a normative statement?
A statement that includes a value judgement and cannot be refuted just by looking at data or evidence.
What is a value judgement?
A view about what is right or wrong, good or bad in a moral sense. Statements that include value judgements often, but not always, contain the words ‘should’ or ‘ought’.
What is economic activity?
The production, consumption, exchange and distribution of goods and services.
What are economic resources?
The inputs into the production process that are needed to produce the goods and services that satisfy people’s wants. They are usually classified as land, labour, capital and enterprise.
What is land in terms of economic resources?
The factor of production that includes all the natural resources that are available on the earth. It includes the land and sea.
What is capital in terms of economic resources?
The human-made factor of production. Examples of capital include machines, tools, lorries and buildings.
What is labour in terms of economic resources?
The human resource. The contribution made by people to the production of goods and services.
Who is an entrepreneur?
The person or group of people who organise the other economic resources to allow goods and services to be produced.
What does enterprise involve?
Making decisions and taking risks.
What is a scarce resource?
A factor of production that is limited in supply. There are not enough available to satisfy people’s needs and wants.
What is scarcity?
The fundamental economic problem that results from limited resources and unlimited wants. It means that choices have to be made which have an opportunity cost.
What is opportunity cost?
The next best alternative foregone when a choice is made.
What does a production possibility diagram show?
It shows the quantities of two goods or services that can be produced with the available resources, given the current state of technology.
What is the production possibility boundary (PPB)?
The PPB is also known as the production possibility curve (PPC) and the production possibility frontier (PPF). It shows the various quantities of two goods or services that can be produced, with the current state of technology, when all the available resources are fully employed.
What is resource allocation?
How the available factors of production are used to produce different goods and services. The allocation of resources involves determining what is produced, how it is produced and for whom it is produced.
What is rational economic decision making?
Using all the available information to select the best option to maximise the welfare of the decision maker. A rational consumer chooses to buy the goods and services that, given their limited income, will maximise their total utility.
What is utility?
The satisfaction that is derived from consuming a good or service.
What is marginal utility?
The change in total utility that results from the consumption of one more, or one fewer, goods or services.
What is the hypothesis of diminishing marginal utility?
The proposition that as more of a product is consumed, the additional satisfaction gained from each extra unit declines.
What is imperfect information?
When an economic agent does not have all the information needed to make a rational decision, or the information is distorted in some way.
What is asymmetric information?
A type of imperfect information where one party to an economic transaction has more or better information than the other party.
What is a demand curve?
The relationship between the price and quantity demanded of a good or service, in a given period of time, when other things that affect demand are held constant.
