Economic methodology and the economic problem

positive statement

a statement that can be scientifically tested to see if it is correct or incorrect

normative statement

statement including a value judgement that can't be tested just by looking at evidence

need

basic requirement for survival, including food, clothing, and shelter

want

something that people desire but that is not necessary for survival

economic welfare

the economic well-being of an individual, a group within society or an economy.

production

process that converts inputs into output of goods

capital good

a good used in the production of other goods or services

consumer good

a good which is consumed by individuals or households to satisfy their needs or wants

factors of production

resources of land, labour, capital, and entrepreneurship used to produce goods and services

finite resource

a resource such as oil, which is scarce and runs out as it is used

renewable resource

a resource such as timber, that with careful management can be renewed as it is used

fundamental economic problem

how to allocate limited resources to meet unlimited wants. Improve and maximise human happiness and welfare

scarcity

results from the fact that resources are limited and wants are unlimited

opportunity cost

The value of the next best alternative that must be forgone as a result of a decision

free good

a good that is unlimited in supply and has no opportunity cost

economic good

a good that is scarce; has an opportunity cost

production possibility frontier

a curve showing the various combinations of two products (or types of products) that can be used when all the available resources are fully and efficiently employed

economic growth

the increase in the potential level of real output the economy can produce over a period of time

full employment

the level of employment when all who are able and willing to work are employed

unemployment

when not all who are willing and able to work are employed

resource allocation

It's the process of distributing an economy's limited resources across different possible uses.

productive efficiency

when it is impossible to produce more of one good without producing less of another

allocative efficiency

when available economic resources are used to produce the combination of goods and services that best match peoples tastes and preference