economic methodology

• what is a positive statement


  a fact that can be tested
• what is a normative statement 


  a statement that includes a value judgement
• what is a value judgement 


  a personal decision on the value of something
• what is the economic methodology

  1)observe consumer behaviour

  2)form a hypothesis on spending

  3)develop predictions

  4)test using evidence

  5)conclude
• what is the basic economic problem

  there is scarcity due to limited resources but unlimited wants and needs
• what are the key economic decisions

  -what to produce

  -how to produce it

  -who gets to benefit from it production
• what is meant by economics as a social science

  studying economic behaviour of individuals and groups

  and

  studying economic relationships between individuals
• define economic welfare 


  economic wellbeing that arises from consumption
• define economic activity 


  the production and sale of goods and services to meet needs and wants
• what are the factors of production

  land- natural resources

  labour- human resources

  capital- man made aids to production

  enterprise- the organization of land, labour, capital
• what are the costs of production

  the cost of the factors of production
• the environment is an example of a

  scarce resource
• what are the 2 types of resource

  finite- limited supply

  renewable- supply can be regenerated
• what is an opportunity cost


  the next best choice forgone due to a decision
• define allocative efficiency 


  when allocation of resources maximizes social benefits
• define productive efficiency 


  when average costs of production are minimised by being the most efficient
• define economic efficiency 


  allocative + productive
• what is a PPD

  the output combinations of two products that could be produced when using resources effectively
• define scarcity 


  when there is insufficient resources available to produce this combination
• what is unemployed resources


  more of each good could be made without sacrifice
• what does a curved ppd show

  opportunity cost varies at each output combination. e.g. losing one of good A and gaining 10 of good B
• PPD diagram 


  all points on the line show productive efficiency

  Y= scarcity

  X= unemployment of resources

  the opportunity cost varies between A and B ad the volume of cotton gaines i greater than the win lost

  shifts in the curve show long term economic growth

  changes in gradients of the curve show an ability to produce more of one good but not the the other