Unit 1 - Economic Methodology and the Economic Problem

normative statement

normative statement

a statement that includes a value judgement and cannot be refuted just by looking at the evidence

positive statement

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

need

something necessary for human survival, such as food or water

want

something desirable, such as a mobile phone, that is not necessary for survival

economic welfare

the economic wellbeing of an individual, a group within society or an economy

economic system

the set of institutions within which a community decides what, how and for whom to produce

market economy

an economy in which goods and services are purchased through the price mechanism in a system of markets

command (planned) economy

an economy in which government officials or planners allocate economic resources to firms and other productive enterprises

mixed economy

an economy that contains both a large market sector and a large non-market sector in which the planning mechanism operates

production

converts inputs or factor services into outputs of goods and services

capital (producer) good

a good which is 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

inputs into the production process (e.g. land, labour, capital and enterprise)

renewable resource

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

non-renewable (finite) resource

a resource that is scarce and runs out as it is used

fundamental economic problem

how to best make decisions about the allocation of scarce resources among competing uses, so as to improve and maximise human happiness and welfare

scarcity

the result of the fact that people have unlimited wants but limited resources

choice

the act of selecting among alternatives

opportunity cost

the cost of giving up the next best alternative

production possibility frontier

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

technical progress

new and better ways of doing things

economic growth

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

full employment

when all who are able and willing to work are employed

unemployment

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

resource allocation

the process through which the available factors of production are assigned to produce different goods and services

productive effiency

for the economy as a whole occurs when it is impossible to produce more of one good without producing less of another