Economic Methodology

Ceteris Paribus

All other things remain equal

Factors that decide the demand for a good

• Pricing

• Competitions from other firms (if other firms have a lower price)

Opportunity Cost

The next best alternative foregone

Economic problem

Infinite wants, but finite resource.

Factors of production

Resources needed to produce goods or services.

• Capital (Technology, machinery)

• Enterprise (Creating a new business)

• Land (Raw resources, territory)

• Labour (Workers)

Production Possibility Frontier

Demonstrates the production of two costs with their opportunity costs while allocating resources efficiently (productively efficient)

Productive Efficiency 

Producing goods at the lowest possible average costs (lowest point of AC)