Economic methodology and the economic problem

MICROECONOMICS

The study of choice and decision making in a world of limited resources

ENTERPRISE

The combining of other factors of production in order to produce goods and services. Entrepreneurs undertake this action and are motivated by profit

PRODUCTIVE EFFICIENCY

How well and economy uses its resources (Factors of production) to produce outputs

OPPORTUNITY COST

The next best alternative that was given up when making a choice

ALLOCATIVE EFFICIENCY

Resources are being used to create goods and services that consumers wish to buy

SCARCITY

When there is not enough of something (product/service/resource) to satisfy everyone’s needs and wants at a zero price

PRODUCTION POSSIBILITY

The maximum combination of goods and services that can be provided by an economy or a firm during a given time period with the available factors of production

ECONOMIC PURPOSE

The production of goods and services in order to satisfy needs and wants

NORMATIVE ECONOMICS

About value judgements and opinions, however people have different views about right and wrong, meaning normative economics cannot be scientifically tested

POSITIVE ECONOMICS

Can be scientifically tested and proven to see if a theory is correct or not. A positive statement does not have to be true as long as it can be tested

MORAL JUDGEMENT

Based on what is deemed to be good or right

POLITICAL JUDGEMENT

Based on the need to appeal to a select group of people

LABOUR

The human effort (both physical and mental) used in the production of goods/ services

LAND

Natural resources (eg; coal, land, minerals)

CAPITAL

Goods produced solely in order to assist production of other goods (eg; machinery)

How does a PPF show opportunity costs

Where one point may be efficient production of capital goods, the other point may show inefficient production of consumer goods

THE ECONOMIC PROBLEM

How to allocate finite resources in a world of infinite needs/ wants and demands