Topic 1 : The Economic Problem And Econmic Metholodogy Flashcards
(20 cards)
1.1 - What does the assumption of “ceteris paribus” mean in economics??
It means “all other things being equal” and is a way of isolating the effect of only one variable by assuming nothing else changes.
1.1 - What is a positive statement? / What is a normative statement?
A positive statement is one which can be tested with factual evidence and can be accepted or rejected. / A Normative statement is a subjective statement based on opinion rather than fact.
Positive statements are objective —> based on fact
Normative statements are subjective —> base on value judgement
PS - “higher temperatures will lead to more demand for sunscreen”
NS - “The government should increase tax on alcohol”
1.1 - What is value judgement and how does it impact economic decision making?
Value judgement is the subjective opinion of different people. Value judgement causes different economists to make different decisions based on the same statistic.
e.g - the rate of inflation can be given different solutions based on different judgements.
1.2 - What is the purpose of economic activity
To satisfy consumer needs/wants.
1.3 - What are the four factors of production (the economic resources) + their definitions and rewards…
Land - Natural resources such as oil coal wheat and water. Can be used as a physical space for the use of capital (but must pay rent )
Labour - Human capital, which is the workforce of the economy (but have to pay wages)
Capital - Physical goods which can be used in the production process to create goods (e.g - machinery) - You must however pay interest for the investment into the capital.
Enterprise - Managerial ability of someone who takes risks (an entrepreneur), innovates and uses the factors of production in order to produce goods. incentive to take these risks is the possibility of profit.
1.3 -What is an entrepreneur??
Someone who takes risks, innovates and utilises the factors of production in order to produce a good.
1.3 - WHat makes a resource sustainable?
If the rate of replenishment is greater than the rate of consumption.
1.4 - What is the basic economic problem??????
Scarcity… Wants are unlimited but resources are finite. So choices have to be made and resources should be distributed evenly.
e.g - going to shop… you only have £1 but want chocolate AND crips. In this case, the lack of resources (the money) means that you have to make choices
1.4 - How does economic problem of scarcity of resources lead to opportunity costs?
The opportunity cost rises from having to make a decision and therefore losing the option of the next best choice forgone
e.g - buying a bar of chocolate rather than the crisps and therefore not having the option of buying the crisps due to a lack of money (resources)
1.4 - Oportunity cost definiton??
the cost of giving up the NEXT BEST alternative.
(since economists assume people are rational and choose the best options.)
1.5 - what does PPF curve stand for and what do they show?
Production possibiltity frontier - show the maximum productive potential of an economy using a combo of two different goods/services when resources are efficiently employed.
shows the opportunity cost of the production of a certain good (its laternative that cant be produced as much because of it)
1.5 - What is economic growth?
The increase in the potential output of the economy over time.
1.5 - What is resource allocation??
The process of assigning the different factors of production to produce goods/services.
What are 3 types of national economies (+ examples)
Free market Economy - (capitalist countries - USA, UK, Japan)
Command Economy - (communist countries - Cuba, Russia, China)
Mixed economy - one in which there is both a large market sector and a large non market sector (where the command economy operates.)
Examples of Why the UK is a mixed economy:
There are sectors of the market which are controlled by the government such as the healthcare service, education and other necessary public goods.
On the other hand the rest of the economy is an example of the free market which are based purely off market forces interaction with each other making the UK have a mixed economy.
Difference between free marketer and interventionists.
An interventionists is someone who believes that the government should have an influence on the economy
A free marketer believes that the economic systems should be based on the market forces (supply and demand with little intervention from the government)
What are the objectives of different economic agents
Producers/firms - maximising profit and output.
(Consumers (rational) ) - Maximising satisfaction by correctly choosing how to spend their limited income.
Government - aims to improve the economic and social welfare of citizens
What is a Capital good
Capital goods are utilities which businesses invest in, in order to produce output and therefore revenue for the business.
What does a straight line on a PPF graph show.
That the production of one good (e.g - a tank) is directly proportional to the production of one less of another good (e.g - a military aircraft). This clearly shows the opportunity costs of allocating resources to a specific
What are consumer durables and non durables
Consumer durable goods - goods which provide a steady flow of satisfaction (are used many times such as a washing machine, a coffee machine, a smartphone, etc. )
Consumer non durables - goods which are used up in the act of consumption (drinking a coffee, wasting food that you bought)
