1.1 economic methodology and the economic problem Flashcards
why is economics considered a social science?
because it looks at the behaviour of humans either as individuals or as part of organisations and their use of scarce resources
how is economic methodology used similar to methodology used by scientists in natural and other sciences?
develop theories and create economic models to explain phenomena
use simplifying assumptions to limit the number of variables in an investigation
test theories and models against relevant known facts
use empirical data to improve and revise economic models
use economic models to make predictions
how is economics dissimilar to natural sciences?
economists can’t conduct controlled lab experiments where only one variable is changed at a time
ceteris paribus
all other things remaining equal
when is ceteris paribus used?
when looking at the relationship between two factors
they’ll assume only these two factors change and all other factors remain the same
enables economists to develop theories, models and make predictions
positive statements
objective statements that can be tested by referring to the available statements and evidence
normative statements
subjective statements which contain a value judgement, opinions
basic economic problem
how can the available scarce resources be used to satisfy people’s infinite needs and wants as effectively as possible
four factors of production
capital
enterprise
land
labour
capital
equipment used in producing goods in services
different from land because capital has to be made first
enterprise
refers to the people who takes risks and create things from the other factors of production
reward is profit
land
including all the natural resources in and on it
as well as actual ‘territory’
e.g. materials, water, animals
scarce
labour
work done by those people who contribute to the production process
labour force
population who are available to do work
human capital
consists of the knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realize their potential as productive members of society
