1.1 Flashcards
Why do economists develop models and theories?
In order to explain the choices we make in our everyday lives.
What do economic models allow us to do?
To simplify analysis and create links between variables.
Why are economic models sometimes criticised?
For not being sufficiently realistic- the real world is much more complex than most economic models suggest.
What are assumptions?
Initial or prior conditions made before micro/macroeconomic analysis is built.
Why are assumptions used?
For the simplification of a theoretical idea or an economic relationship.
What is ceteris paribus?
It’s the assumption that when we focus on changes in one variable, all other influencing factors are held constant.
Why is ceteris paribus important?
In order to simplify the analysis of the effect of one variable on another.
Can economists make scientific experiments?
No- economists can’t prove the relationships between variables by conducting experiments. Instead, they create simplified models of the economy to do this.
What is a positive statement?
It’s an objective (factual) statement that can be tested, amended or rejected by referring to evidence.
What is a normative statement?
It’s a subjective statement- it carries a value judgement.
