Economic methodology and the economic problem

What makes economics a social science?

Economics studies human behavior and how people interact to allocate scarce resources. It focuses on decision-making and its societal impacts.

How is economics similar to natural sciences?

Both use models, hypotheses, and data to analyze and predict outcomes.

What is a positive economic statement?

A statement based on facts, data, and evidence

is objective

What is a normative economic statement?

A statement based on opinions or value judgments is subjective

Why is the distinction between positive and normative statements important?

It helps separate objective analysis from subjective opinions in economic policy-making.

How do value judgments influence economic decision-making?

People's moral, cultural, and political beliefs affect their views on policy

What factors influence people's views on the best economic option?

Positive consequences of decisions, moral values, and political ideologies.

What is the central purpose of economic activity?

To produce goods and services that satisfy human needs and wants.

What are the three key economic decisions?

What to produce? ​

how to produce

Who will benefit from the goods and services?

What are the four factors of production?

capital

enterprise

land

labour

Why is the environment considered a scarce resource?

It has finite availability, and its misuse can lead to depletion and unsustainable growth.

What is the fundamental economic problem?

Scarcity—limited resources cannot satisfy unlimited wants.

What is opportunity cost?

he value of the next best alternative forgone when making a choice.

Why do choices arise in economics? ​

Because resources are scarce, decisions must be made about their allocation.​

What does a point on the Production Possibility Frontier (PPF) represent?

A combination of goods/services that are productively efficient, using all resources.

What does a point inside the PPF indicate?

Underutilization of resources or unemployment.

What does a point outside the PPF signify?

An unattainable level of production with current resources and technology.

How does the PPF illustrate opportunity cost?

Moving along the PPF shows the trade-off between producing one good over another.​

Why are all points on the PPF productively efficient but not necessarily allocatively efficient?

Productive efficiency uses all resources optimally, but allocative efficiency depends on societal needs and preferences.

Define allocative efficiency.

When resources are distributed to produce the combination of goods most desired by society.

What is economic growth in the context of a PPF?

An outward shift of the PPF, indicating an increase in an economy's capacity to produce goods and services.