Theme 1.1 Nature of Economics Flashcards
(32 cards)
Define: ceteris paribus
All things being equal; the assumption that, whilst the effects of a change in one variable are being investigated, all other variables are being kept constant
Define what a law is in terms of economics
A theory or model which has been verified by empirical evidence
Define: normative economics
The study and presentation of policy prescriptions involving value judgements about the way in which scarce resources are allocated
Define: normative statement
A statement which cannot be supported or refuted because it is a value judgment
Define: positive economics
The scientific or objective study of the allocation of resources
Define: positive statement
A statement which can be supported or refuted by evidence
Define: scientific method
A method which subjects theories or hypotheses to falsification by empirical evidence
Define: social science
The study of societies and human behaviour using a variety of methods, including the scientific method
Define: theory or model
A hypothesis which is capable of refutation by empirical evidence
What is the basic economic problem?
Where there are finite resources (scarce resources) but people have infinite wants
Why do economists make models?
To provide an alternative to doing it in real life as there may be unseen consequences.
Why is ceteris paribus an important assumption for economists?
As it is very difficult to predict all variables that occur in real life, therefore it simplifies the analysis of theories/models
What does scarce resources mean?
That decisions need to be made regarding WHAT, HOW, WHY and FOR WHOM hoods and services are produced
What is the difference between renewable and non renewable resources?
Non renewable resources are things such as coal and oil- things that will eventually run out; whereas renewable resources are things such as wind and solar- things that will never run out
What is opportunity cost?
Cost of a decision in terms of the next best best alternative foregone
What does a PPF curve show?
It shows the maximum possible combination of goods/services that can be produced using all available resources, it also helps analyse trade-offs
Where is the maximum productive potential of an economy on a PPF?
Any point along the line of the PPF
Where is the concept of opportunity cost on a PPF?
The movement from one point on the curve to another point on the curve
Where is economic growth shown on a PPF and how does it occur?
An outward shift of the whole PPF curve. This can be caused by an increase in the quantity or quality of the factors of production
Where is an economic decline shown on the PPF?
An inward shift of the whole PPF curve, often caused by war or a natural disaster
What are the factors of production?
Land
Labour
Capital
Entrepreneurship
What is productive efficiency
Where all factors of production are being fully utilised
Where is productive efficiency show on the PPF?
Any point on the curve any point under the curve is inefficient - some the factors of production are not being fully utilised
What does it mean if there is a point outside the PPF curve?
That point is unobtainable given the current resources and it would take economic growth for that point to become obtainable
