1.1 Economic Methodology and The Economic Problem

  • Created by: Sam19
  • Created on: 02-01-17 13:43
A proposed explanation for an event
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An hypothesis which has been tested and seems to stand up to that testing. It does not mean it is true but it has not been disproven.
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Ceteris Paribus
Leave everything else the same.
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Normative Statement
They are opinions or viewpoints and are value judgements. They cannot be tested or proven.
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Positive Statement
They can be tested. They are objective and scientific.
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Value Judgements
Is a judgement of the rightness or wrongness of something or someone, or the usefulness of something, based on a comparison.
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Moral and Political Judgements
People's views concerning the best option are influenced by the positive consequences.
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What is the purpose of economic activities?
The production of goods and services to satisfy needs and wants.
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What are the 3 basic needs?
Shelter, Warmth, Food & Water.
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What do economic systems attempt to solve?
What we should produce, how we should produce it and for whom it should be produced.
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Name 3 economic activities:
Trading, Car boot sales, Charity work, DIY, Barter and Illegal trades.
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Factors of Production
An economic term to describe the inputs that are used in the production of good &/ services in the attempt to make an economic profit.
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Name the 4 factors of production:
Land, Labour, Capital and Entrepreneurship
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Natural resources E.G: Sea, Sand and Sun that have been so important for the development of tourism.
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Human resources. Quality and quantity are key considerations.
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Physical resources covering anything that can be regarded as man made aid for production.
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Form of human capital. The 3 factors of production combine. It refers to inventiveness and taking risk.
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What is the fundamental economic problem?
Despite all our wants and needs there are simply not enough resources to meet these needs. This is scarcity.
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What is the economic problem?
There are infinite wants but limited resources.
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Opportunity Cost
Next best forgone alternative.
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Economic Goods
Are goods that are scarce and therefore they involve an opportunity cost. Nearly all goods are economic goods.
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Free goods
Are goods which have no opportunity cost.
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Intellectual Idea
If you develop a new invention and don't patent it, anyone can reuse the idea without any opportunity cost.
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By Products
If heat is generated from a recycling plant the creates a good: heat at no opportunity cost.
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On a PPF what is on the X axis and what is on the Y axis?
X- Services or consumer goods & Y-Goods or capital goods
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What does a PPF show?
It links the maximum amount of any two types of product that can be produced from a fixed quantity of resources and existing technological knowledge.
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What is it called in you are inside your PPF?
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What is it called it you are outside your PPF?
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What is it called in you are on your PPF?
Efficient and not allocatively productive
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What is allocating efficient?
It is achieved at any point on the PPF because it is not possible to make anyone better of without making someone else worse off.
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Capital Goods
Are human made products used in the production of other goods and services E.G: Machines.
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Consumer Goods
Are the products bought by consumers for their own use and enjoyment.
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How can you shift your PPF?
Increase labour, find new resources, improve efficiency, improved technology, improvement in human capital, better management of resources via division of labour & specialisation and changing attitudes - encouraging entrepreneurship.
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Human Capital
Is the increased investment in training, education and good management which motivates staff.
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Card 2




An hypothesis which has been tested and seems to stand up to that testing. It does not mean it is true but it has not been disproven.

Card 3


Ceteris Paribus


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Card 4


Normative Statement


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Card 5


Positive Statement


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