Economics as a Social Science and the Economic Problem

Flashcards covering the fundamental concepts of economics as a social science, positive and normative statements, economic data measurement (nominal vs. real, indices), the economic problem of scarcity, and the four factors of production.

Economics

A social science that uses the scientific method to study how groups of individuals make decisions about the allocation of scarce resources.

Ceteris Paribus

A Latin phrase meaning "all other things being equal" or "other things held constant," used by economists to isolate the relationship between two specific variables.

Positive Economics

An objective, fact-based approach to economics that analyzes cause-and-effect relationships and deals with statements that are testable and falsifiable.

Normative Economics

A value-based approach to economics that focuses on what economic outcomes should be, based on subjective value judgements that cannot be tested or disproven.

Economic Theory

A hypothesis or explanation of economic interactions, generally expressed in words and capable of refutation by empirical evidence.

Economic Model

A set of theories used to explain economic interactions, often expressed in mathematical terms for greater precision.

Law

In economics, a theory or model that has gained universal acceptance after being verified by empirical evidence.

Sovereignty

Full control and legislative independence over laws and rules, a primary argument for the UK's departure from the European Union.

Free Movement Policy

The European Union policy that allows the unrestricted flow of people across member state borders.

Scientific Method

A universal method of enquiry involving a systematic process of testing ideas and subjecting theories to falsification by empirical evidence.

Empirical

Information that is based on, concerned with, or verifiable by observation, experience, or experiment rather than theory or pure logic.

Value Judgement

A subjective assessment of the worth, goodness, or quality of something, based on personal beliefs, ethics, or preferences.

Nominal Values

Economic values that are unadjusted for the effects of inflation and are expressed at the current prices of the time period being measured.

Real Values

Economic values that have been adjusted for inflation (constant prices) to reflect true purchasing power relative to a fixed base period.

Purchasing Power

The physical quantity of goods and services that one unit of money can buy, which is eroded by inflation.

GDP (Gross Domestic Product)

The total monetary value of all final goods and services produced inside a country over a specific period, such as one year.

Marginal Tax Rate

The tax rate applied specifically to the next extra unit of income earned above a certain threshold.

Index Number

An indicator showing a relative value of one number compared to a base value, which is always set to $100$, to simplify statistics and averages.

Base Period

The specific period (such as a year or month) against which all other values in a series are compared, typically set to an index of $100$.

Chain-linking

A statistical method that updates the base year every year to ensure real economic data reflects modern consumption patterns while tracking long-term trends.

Scarcity

The fundamental economic problem that arises because resources are finite while human wants are infinite.

Economic Goods

Goods that are scarce in relation to the demand for them, thus commanding a price and involving an opportunity cost to obtain.

Free Goods

Goods that are naturally abundant and have an opportunity cost of zero for consumption, such as air or sunlight.

Opportunity Cost

The benefit or value of the next best alternative that is sacrificed when a choice is made.

Factors of Production

The four resources used to create goods and services: Land, Labour, Capital, and Enterprise.

Land

All natural resources found below the earth, on the ground, in the atmosphere, and in the sea; it earns rewards in the form of rent and royalties.

Renewable Resources

Natural resources that can be used and naturally replaced over time, provided they are managed correctly, such as fish stocks or forests.

Sustainable Resources

A type of renewable resource that renews itself at a rate equal to or faster than its consumption, such as solar or wind energy.

Labour

The human workforce of an economy, earning rewards in the form of wages or salaries.

Human Capital

The economic value of a worker, measured by their combination of education, skills, health, and experience.

Capital

The manufactured stock of man-made resources used in the production of other goods and services; it earns interest as a reward.

Fixed Capital

Long-term physical assets, such as factories and machinery, that remain intact and provide productive capacity over multiple cycles.

Working Capital

Short-term assets like raw materials and semi-finished goods that circulate through the production process and are used up in a single cycle.

Enterprise

The factor of production involving the active force of seeking profitable opportunities and taking risks to combine land, labour, and capital into a business; it earns profit.

Net Migration

The difference between the total number of people entering a country to live and the number of people leaving to live abroad.

Single Market

An agreement integrating multiple countries into a unified economic territory allowing the free flow of goods, services, capital, and people.