ECONOMIC METHODOLOGY &
THE ECONOMIC PROBLEM
Section Content
ECONOMIC METHODOLOGY
- Economics as a social science
- Similarities to and differences in methodology from natural and other sciences - The difference between positive and normative statements - How value judgements influence economic decision making and policy - People’s views concerning the best option are influenced by the positive consequences of different decisions and by moral and political judgements THE NATURE & PURPOSE OF ECONOMIC ACTIVITY- The central purpose of economic activity is the production of goods and services to satisfy needs and wants
- The key economic decisions are: what to produce, how to produce and who is to benefit from the goods and services produced ECONOMIC RESOURCES- The economists’ classification of economic resources into land, labour, capital and enterprise, which are the factors of production
- The environment is a scarce resource SCARCITY, CHOICE AND THE ALLOCATION OF RESOURCES
- The fundamental economic problem is scarcity and that it resultsfrom limited resources and unlimited wants
- Scarcity means that choices have to be made about how scarce resources are allocated between different uses - Choices have an opportunity cost PRODUCTION POSSIBILITY DIAGRAMS
- Production possibility diagrams illustrate different features of the fundamental economic problem, such as: resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth.
- Why all points on the boundary are productively efficient but not all points on the boundary are allocatively efficient |
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