Economic Methodology

Full flashcard set for Economic Methodology section of AQA Economics

Economics is a …

Social science that is subject to prejudice and conditions for testing are uncontrollable

Ceteris Paribus means

all other factors are the same - when one factor is changed it is assumed all others stay the same

Positive Statements are

Objective and factually based statements that can be tested (facts)

Normative Statements are

subjective questionable statements that cannot be tested (opinions)

Economic decision making is influenced by

• The opportunity cost of all alternative options

• All decisions are based off of positive and normative judgements

The purpose of economic activity is…

To produce goods and services to satisfy needs and wants

Needs are

things required for survival

Wants are

things desired but not essential

Factors of Production

• Land

• Labour

• Capital

• Enterprise

Labour is

The workforce - value of a worker is human capital

Land is

All the natural resources used in production.

Capital is

Man-made aids to production

Enterprise is

The individual or business who take the initiative to set up a business and employ different factors of production

The Economic Problem is

People have unlimited wants but there aren’t enough resources to satisfy them

The Economic Problem occurs when

finite resources are unable to meet unlimited wants

3 basic questions of economics

• What to produce?

• How to produce?

• Who to produce for?

PPC’s show

• the different combinations of the output of two products - as the output of good x increases that of good y decreases and vice versa

• The concepts of scarcity, choice and opportunity cost

Shifts in PPC

Caused by economic growth or shrinkage

Economic growth is

Caused by an increase in the quality or quantity of production

Productive efficiency

• Occurs along the PPC curve

• Where society is using its resources efficiently

Allocative efficiency

• Occurs at one point on the curve where social welfare is maximised

• Where production is the most beneficial to society