Microeconomics : Chapter 1 - Economic Methodology And The Economic Problem Flashcards
(50 cards)
What are 3 assumptions microeconomists make?
What does it mean?
Ceteris Paribus.
The assumption that other things remain constant.
Rationality.
The assumption that each economic agent acts in their best interest.
Market efficiency.
The assumption that markets tend to move toward equilibrium where supply equals demand, allocating resources efficiently.
What is a positive statement?
Objective statements, they can be tested with factual evidence. Often contain words like ‘will’ or ‘is’.
What is a normative statement?
Value judgements, subjective and opinion based. Often contain words like ‘should’.
What are the 3 questions Economists ask when making decisions about how to use scarce resources?
What is to be produced?
How should it be produced?
Who will benefit from the goods and services produced?
What is the purpose of economic activity?
To produce goods and services which satisfy customer needs and wants.
What are the factors of production?
Capital
Land
Labour
Entrepreneurship
What is Economics as a social science?
Economics as a social science studies how individuals, firms, and governments allocate scarce resources to satisfy unlimited wants. It analyses human behavior, decision-making, and interactions in the production, distribution, and consumption of goods and services.
What will rational agents want to gain from their choices?
Consumers = maximising their utility
Producers = maximising their profits
Workers = maximising their wages and work environment
Governments = maximise welfare of citizens
What are some differences in methodology from natural/other sciences?
Human behaviour = deals with unpredictable human actions, which are influenced by emotions, culture, and irrationality, unlike the predictable laws of natural sciences.
Value Judgments = Economic analysis can involve normative statements (opinions on what “should” happen), whereas natural sciences focus purely on objective facts.
What are some similarities in methodology from natural/other sciences?
Use of Models and Theories = economics also uses models to simplify complex realities and make predictions.
Empirical Evidence = economists collect data, test hypotheses, and use statistical methods to analyse relationships.
What is meant by ‘Land’?
What is the reward?
The scarce physical natural resources available for production.
Its reward is rent.
What is meant by ‘Labour’?
What is the reward?
Labour is the human input.
It’s reward is wages.
What is meant by ‘Enterprise’?
What is the reward?
Enterprise is the entrepreneurship ability that organises the other factors of production, Entrepreneurs take risks.
The reward may be profit.
What is meant by ‘Capital’?
What is the reward?
Goods that are used to make and manufacture consumer goods and services.
The reward is interest.
What does Economics study?
The choices people take under conditions of scarcity and uncertainty.
What is the study of microeconomics?
Economics at the individual, industry or household level.
What is meant by opportunity cost?
It measures the cost of a choice compared to the next best option.
What are three types of consumer goods?
Consumer durables
Consumer non-durables
Consumer services
Give an example of consumer durable.
Washing machine
Give an example of consumer non-durable
Latte
Turning on the heating
Give an example of consumer service.
Haircut
What does the rate of extraction of finite resources depend on?
Current market price
(Free market economy) that extract resources such as oil have a greater incentive to do so
What are the 2 main economies?
Free market and Planned
Mixed economy (both)
What are the principles of a free market?
Market allocates resources to people
Little government intervention
Profit motivated businesses
Competition
Private ownership
