4.1.1.1-4 - Purpose of economics
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18 Terms
Economics =
Social science studying the allocation of scarce resources that have alternative uses.
Why is Economics a Social Science?
Because it involves the study of human behaviour and economic decision making
Positive Statement =
Objective statement that can be tested
Normative Statement =
Subjective statement that cannot be tested (includes a value judgement)
Value Judgement =
Subjective assessment of something based on personal values.
i.e. an opinion
The 4 Factors of Production
CELL
Capital
Enterprise
Land
Labour
Capital =
Man-made aids to production
Enterprise =
The process of taking a risk in starting a business and combining the other 3 FoP in order to produce a good or service
Labour =
Human resources in an economy
Land =
All the natural resources above and below ground
Renewable Resources =
Resources that can replenish themselves
Non-Renewable Resources =
Resources that cannot be replenished or reused, and once used up are no longer available.
Fundamental Economic Problem =
Scarcity - People have unlimited wants but there are finite resources available
What is the purpose of economic activity?
To solve the fundamental economic problem by producing goods & services in order to satisfy the wants & needs of society, to improve economic welfare.
The 3 Key Economic Decisions
What to Produce
What goods/services to produce with these finite resources
Typically Capital vs Consumer goods
Firms know what to produce through the interaction between supply & demand
Gov knows what to produce by overall welfare needs of society
How to Produce
Labour-Intensive vs Capital-Intensive methods
Optimal combination of FoP (CELL)
For Whom to Produce
In free market economy - The interaction of supply & demand determines who gets the output and at what quantity
In command economy - Gov decides based on society’s needs
Mixed economy - combination of both
Economic Activity =
When the 4 FoP are combined to produce g&s
Opportunity Cost =
The potential benefit foregone of the next best alternative
.