What is economics
study of how resources are allocated
what is the economic problem
infinite wants and needs, finite resources
similarities to natural sciences
- Empirical observations
(gather data from real world observations) - data analysis
(analyse data to draw conclusions and make predictions) - modelling
(use maths to explain and forecast complicated situations)
differences to natural sciences
- controlled experiments
(hard to control all factors in real world settings) - Predictability
(economics is less predictable because human behaviour is affected by many factors and harder to forecast)
What is a positive statements?
Objective statements that can be tested and evaluated based on empirical evidence or info.
Normative statements
Subjective, value judgements that cant be proven true or false.
value judgements
subjective moral beliefs about what is good or bad/ right or wrong.
purpose of economic activity
Allocate scarce resources to meet unlimited wants / needs of society
key economic decisions
- What to produce
- How to produce the good/ service
- Who the good/ service will benefit.
Factors of production
- Land: stock of natural resources
- Labour: Human input into production
- Capital: man made resources (machines)
- Enterprise: taking risks/ organising produce.
economic assumptions
Made to simplify and help develop theories that explain economic behaviour.
Rational Assumptions
Make decisions to maximise their own utility or satisfaction
Ceteris Paribus
holding other things constant or all other things being constant.
Allow the analysis of the relationship between variables without complications of other influencing factors.
What do PPFs depict
The maximum productive potential of an economy using a combination of two goods/ services when resources are fully and efficiently employed.
What can the PPF curve show?
shows the opportunity cost of using scarce resources
