Studied by 0 people
Economics methodology
Develop theories and create economic models to explain phenomena
Use simplifying assumptions to limit the number of variables in an investigation
Test theories and models against relevant known facts, making use of observation, deduction, graphs, statistics and other tools
Use empirical data to improve and revise economic models
Use economic models to make predictions
Ceteris paribus
All things remaining equal
Positive statement
Objective statements that can be tested by referring to the available evidence.
‘A reduction in income will increase the amount of people shopping in pound shops.’
Nomative statement
Subjective statements which contain a value judgement - they are opinions.
‘The use of fossil fuels should be taxed more highly than the use of renewable fuels.’
Basic economic problem
How can the available scarce resources be used to satisfy people’s infinite needs and wants as effectively as possible?
Four factors of production
Land, labour, capital and enterprise
Purpose of economic activity
To increase people’s economic welfare by creating outputs that satisfy their various needs and wants
Fundamental economic questions
What to produce?
How to produce?
Who to produce it for?
Production possibility frontier (PPF)
Shows the options that are available when you consider the production of just two types of goods and services
Trade-off
When you have to choose between conflicting objectives because you can’t achieve all your objectives at the same time. It involves compromising.
Productive efficiency
When all resources are used as efficiently as possible to produce the maximum possible output
Allocative efficiency
The allocation of resources that leads to the production of goods which maximises consumer satisfaction.
Opportunity cost
The next best alternative that you give up in making a decision
Note 
Flashcard (24)