1a - the nature of economics

economics as a social science, positive and normative economic statements, the economic problem, PPF

define model

a simplified representation of reality used to provide insight into economic decisions and events

define ceterus paribus

‘other things being equal’

used in economics when we focus on changes in one variable while holding other influences constant

what is the economic problem

people have unlimited wants but limited resources

explain the term marginal analysis

making economic decisions based on considreing the additonal marginal benefits and costs of change in behaviour

for example - do the extra benefits of doing economic flaschards outweigh the extra benefits from watching TV?

what are the four factors of production

Capital

Enterprise

Land

Labour

define renewable resource

resources which can be replinshed

e.g forests

define non-renewable resources

resources which cannot be replenished

what is sustainable developement

developement which meets the needs of the present without comprimising the ability of future generations to meet their own needs

what is a production possibility frontier

a curve showing the maximum combinations of goods or services which can be produced in a given period of time with available resources

define opportunity cost

the value of the next-best alternative forgone

define capital goods

goods used as part of the production process such as machinery or factory buildings

define consumer goods

goods produced for present use

define potential economic growth

an expansion in the productive capacity of the economy

whats the use of capital goods

they are like investing in the future

producing more capital goods in one period means less consumer goods in that period but more consumer goods next period

high capital goods = less jam today, more jam tommorow

define gross domestic product

a measure of the economic activity carried out in an economy over a period of time

what does the PPF represent

the maximum combinations of goods or services which can be produced in a period by a given set of resources

so at any point on the frontier, society is making full use of all resources

what do points inside the frontier represent

unemployment in some resources

what do points beyond the frontier represent

unobtainable points

define economic growth

an increase in the productive potential of an economy