Economic methodology and the economic problem/ individual decision making

What is the difference between a positive and normative statement?

A positive statement is an objective statement which can be proved with evidence, whereas a normative statement is subjective.

What is the main purpose of economic activity?

To satisfy needs (required to survive) and wants (not essential but improves economic welfare)

What are the four factors of production?

Land- both environment and resources

Labour- those involved in production, human capital

Capital- physical equipment used to produce goods & services

Enterprise- entrepreneurs willing to take risk and combine the above factors

What is the basic economic problem?

Scarcity & how to best allocate resources to satisfy the needs and wants of society with finite resources.

What to produce and in what quantities? How? Who for?→ free/comman

What is opportunity cost?

The next best alternative foregone

What is a PPF? What causes is to shift?

A PPF shows the maximum production of two goods and services in an economy.

Points on the PPF are productively efficient, points beyond are unattainable, points within are underusing resources

Shifts outward: tech improvements, new resources, improvements in education/ training, increase in size of working population → shows growth

Shifts inward: natural disasters, climate change, recession

What is the difference between productive and allocative efficiency?

Allocative efficiency is the optimum output for society, productive efficiency uses all resources efficiently .