What’s a positive statement?
- It can be scientifically proven, not necessarily true
- Includes words such as ‘will’, ‘was’ and ‘is’
What is a normative statement?
- It’s when it makes a value judgement, it’s hypothetical
- It includes ‘should’ and ‘ought’
What is the CEP?
Scarcity
What is scarcity?
- It’s when there is unlimited wants but finite resources
What is opportunity cost?
It’s the next best alternative.
What is an economy?
It’s a social organisation that determines what, how and whom to produce are mad.
What are the 3 parts of the CEP?
- What is produced?
- How is it produced?
- Whom is it produced for?
What are the factors of production?
- Land = Rent
- Labour = Wage
- Capital = Interest
- Entrepreneurship = Profit
What are the sectors of the economy?
- Primary = Raw materials are extracted
- Secondary/Manufacturing = Raw materials converted into goods
- Tertiary/Service = Transformed into services eg. transport
What are the types of goods?
- Consumer = Clothing, Food
- Capital = Machinery
What is utility?
It’s the satisfaction gained from consuming a unit of a good.
What is marginal utility?
It’s the additional satisfaction gained from consuming an extra unit of the product.
What is diminishing marginal utility?
It’s derived from goods/services, it decreases for each additional unit consumed.
What are the factors determining demand?
- Population
- Price
- Income
- Tastes/Preferences
- Complementary goods
- Substitutes
What are the factors of supply?
ROTTEN
- Resources cost and availability
- Other goods’ prices
- Taxes, subsidies, gov regulations
- Technology (productivity)
- Expectations of the producer
- Number of firms in the industry
What is a substitute good?
It’s when a good is in competing demand; increased prices cause a decreased demand.
What is a complementary good?
It’s when a good is in joint demand ed. car and petrol.
What is a normal good?
As income increases, quantity demanded increases.
What is an inferior good?
As income increases, quantity demanded decreases.
What is a Veblen good?
It’s a snob good, indicative of social status.
What is speculative demand?
Eg. Housing. If prices increase, people assume it will rise even further.
What is a giffen good?
Eg. Poor family. If price of potatoes increases and family buy the same quantity, they can’t afford meat.
What are the causes of an outward shift of a PPF?
- Increased productivity
- Increased stock of capital and labour
- Innovation and invention of new products and resources
- Discovery of new natural resources
- Better management of inputs
What are the causes of an inward shift in a PPF?
- Decreased productive potential
- Resource depletion
