1.1.1 economics as a social science
ceteris paribus: assumption that all other things are being held equal, except one variable, so nothing
else changes.
- in economics -> inability to make scientific experiments, thus assumptions made
1.1.2 positive and normative statements
Positive statements
- assertions of fact
- can be tested as true or false
- objective
- can be tested that…
Normative statements
- value judgements
- cannot be tested as true or false
- subjective
- includes the term ‘unfair/fair’ & ‘justified/unjustified’
1.1.3 the economic problem
scarcity: infinite unlimited wants & finite resources
- factors of production (CELL): inputs to the production process that produce outputs
- scarce resources = non-renewable (e,g fossil fuels (oil/coal) finite in supply -> once exploited
cannot be replaced)
resources (capital = interest // enterprise = profit // land = rent // labour = wages)
- economic goods: scarce goods due to opportunity cost
- free goods: abundant, unlimited supply goods with zero opportunity costs (oxygen, sunlight,
seawater)
- consumer goods: goods purchased to satisfy needs and wants
- capital goods: goods purchased for the production of other goods (machinery)
- capital goods help to produce more goods in the future = further investment
programmes (,g road and rail links) = multiplier effect
- capital goods may help attract more FDI (funding overseas) = increased outward PPF
shift
opportunity cost: the value of the next-best forgone alternative which could have been chosen (e,g GS
on schools/hospitals/infrastructure)
- Consumers: maximise utility
- Firms: maximise profits -> lower production costs & increase output (economies of scale)
- Government: maximise optimum social welfare -> produce public goods with tax revenue
(increased infrastructure, hospitals, schools) -> positive externality of consumption -> ensure
no moral hazard where govt, works in own self interest knowing adverse risks
1.1.4 PPFs
maximum productive potential of an economy, where there is a combination of two goods or services,
and all resources are fully and efficiently employed.
Outward shift of PPF: ⬆️
factors of production = ⬆️
potential output = economic growth
- increased migration = more labour resources available for use in production
- increased: quality of labour / capital stock
⬇️
- improved state of technology = new innovation
Inward shift of PPF: factors of production = negative growth
- natural disasters / wars / conflict
ceteris paribus: assumption that all other things are being held equal, except one variable, so nothing
else changes.
- in economics -> inability to make scientific experiments, thus assumptions made
1.1.2 positive and normative statements
Positive statements
- assertions of fact
- can be tested as true or false
- objective
- can be tested that…
Normative statements
- value judgements
- cannot be tested as true or false
- subjective
- includes the term ‘unfair/fair’ & ‘justified/unjustified’
1.1.3 the economic problem
scarcity: infinite unlimited wants & finite resources
- factors of production (CELL): inputs to the production process that produce outputs
- scarce resources = non-renewable (e,g fossil fuels (oil/coal) finite in supply -> once exploited
cannot be replaced)
resources (capital = interest // enterprise = profit // land = rent // labour = wages)
- economic goods: scarce goods due to opportunity cost
- free goods: abundant, unlimited supply goods with zero opportunity costs (oxygen, sunlight,
seawater)
- consumer goods: goods purchased to satisfy needs and wants
- capital goods: goods purchased for the production of other goods (machinery)
- capital goods help to produce more goods in the future = further investment
programmes (,g road and rail links) = multiplier effect
- capital goods may help attract more FDI (funding overseas) = increased outward PPF
shift
opportunity cost: the value of the next-best forgone alternative which could have been chosen (e,g GS
on schools/hospitals/infrastructure)
- Consumers: maximise utility
- Firms: maximise profits -> lower production costs & increase output (economies of scale)
- Government: maximise optimum social welfare -> produce public goods with tax revenue
(increased infrastructure, hospitals, schools) -> positive externality of consumption -> ensure
no moral hazard where govt, works in own self interest knowing adverse risks
1.1.4 PPFs
maximum productive potential of an economy, where there is a combination of two goods or services,
and all resources are fully and efficiently employed.
Outward shift of PPF: ⬆️
factors of production = ⬆️
potential output = economic growth
- increased migration = more labour resources available for use in production
- increased: quality of labour / capital stock
⬇️
- improved state of technology = new innovation
Inward shift of PPF: factors of production = negative growth
- natural disasters / wars / conflict
