Economic concepts and as a way of thinking (1.1 and 1.2)

Difference between Positive and Normative Economic Statements

Positive: objective statements which can be proven by facts and statistics

Normative: based on the value judgements of an individual

Differences between Keynesian and free market economists:

Keynesian: believe that a well-functioning economy is created with a combination of public sector and government assistance such as:

• Imposing a minimum wage.

• Offering business grants.

• Adjusting Interest rates.

Free Market: advocate for a hands off policy. They believe the marketplace can sort out economic problems through self-regulation.

• No government bailouts

• No state pensions

• No government spending to stimulate the economy.

Resources

Inputs available to produce goods and services

Wants

The goods that people might like to have but are not essential or always realised

Needs

Things that are essential for survival

Scarcity

the fundamental problem of having limited goods but unlimited wants and needs.

Choice

Since resources are scarce, individuals and firms have to consider alternatives.

Why is choice fundamental to the study of economics?

Resources are limited and have alternative uses while wants are unlimited. As a result choices must be made and these choices have an opportunity cost.

Factors of Production

1. Land: anything supplied by nature

2. Capital: anything man made that helps in production.

3. Labour: human activity directed towards the production of wealth.

4. Enterprise: a person who combines the other factors of production, takes the risk in setting up a firm

Opportunity Cost

Best alternative foregone when a choice is made.

Incentive

Something that motivates or encourages someone to do something.