Nature of economics

• What is the role for economists?

  To develop models and theories to explain the multiple choices we make in our lives.
• What is the ceterbis Paribus assumption?

  In an equilibrium everything remains equal.
• What are Neo-classical economists?


  Economists who emphasize the importance of free markets and rational decision-making.
• What is the difference between positive and normative statements?

  Positive statements describe what is, while normative statements describe what something can be.
• What is a positive statement?


  Statements that can be tested due to available evidence.
• What is a normative statement?


  Statement that shows a value judgement= An opinion.
• Is a social science Economics?

  YES.
• What is the economic problem?

  How to satisfy infinite desires with limited resources
• How many factors of production is there?

  4
• What are the four factor of production?

  1. Capital
  2. Enterprise
  3. Land
  4. Labour
• What is capital?

  Capital is equipment used to make G&S
• What is an enterprise?

  Entrepreneurs willing to take risks for profit
• What is economic activity?

  Combining F.O.P to create output that people can consume.
• What are the 3 questions producers ask themselves?

  1. What to do produce
  2. How to produce it
  3. Who to produce it for
• Who are the 3 Economic Agents?

  • Producers
  • Consumers
  • Governments
• What do PPF's show?

  The maximum amount two goods or services an economy can produce
• What is a trade off?


  choosing between conflicting objectives because you can't achieve all objectives at the same time.
• PPF (KEY POINT):

  1. All points on the PPF are productively efficient
  2. Not all points are allocatively efficient
• What is an opportunity cost?

  The cost of the next best alternative
• What are some problems with opportunity cost?

  1. not alternatives are known
  2. not always an alternative option
  3. lack of info on alternatives
  4. some factors may be hard to switch (land)
• PPF (KEY POINT 2)

  1. Economic growth shifts PPF
  2. Improvement in technology shift PPF
  3. Natural disaster shift PPF (IN)
• What is a Market?

  A way of allocating scarce resources
• What is a free market?

  Anything can be sold at any price and people will pay for it ( supply demand and price mechanism)
• What are 2 free market advantages?

  1. Efficiency (best value items in demand )
  2. Choice (incentive for innovation)
• What are 2 free market disadvantages?

  1. Inequality
  2. market failures (monopolies)
• What is a command market?

  The government decides how resources should be allocated
• What are 2 command market advantages?

  1. Low Unemployment
  2. Prevent monopolies
• What are 2 disadvantages of command market?

  1. Poor decision making (lack of information)
  2. Restricted choice
• What is market failure?

  free market= undesirable outcome
• What is a mixed economy?

  Public x Private sector
• What do role do government and business play in mixed economies?

  Businesses= private

  Government= public
• Karl Marx view on free market:

  It creates inequality due to the ruling class exploiting workers lead to a revolution.
• What does the term margin mean?

  one extra unit of another variable
• What is marginal utility?

  The benefit gained from consuming one additional unit of a good
• What is total utility?

  The overall benefit gained from consuming a good
• What is a firms objective?

  maximise profit ( survival, investment, stability)
• What consumer objective?

  utility
• What is the government objective?

  Maximise public interest ( economy growth, employment, low inflation)
• What are the key assumptions of behavioural economics?

  1. Economic agents are utility maximisers
  2. Economic agents are rational
• Ceteris parabuis= all other things remaining constant