1.2 How do economists approach the world

Question 1

What are positive statements? What are some key words that indicate a positive statement

Answer 1

• They are irrefutable statements of which empirical research can prove / disprove.
• When proved, it can become an established economic theory
• Key words: Will, Is, Have, Has, Had

Question 2

What are normative statements? What are some key words that indicate a normative statement

Answer 2

• They are judgements based on belief
• Can’t be proved / disproved with reference to empirical research
• Key words: Too much, too little, fairness / unfairness, should, ought

Question 3

How are theories constructed by economists (OHPT)

Answer 3

1. Economists make observations (O) of consumer behaviour
2. Economists make a hypothesis (H) based on consumer spending
3. Economists make predictions (P)
4. Economists test (T) the hypothesis

if successful, hypothesis is tested further to strengthen it then becoming a theory

If unsuccessful, economists reject the hypothesis and go back to making observations

Question 4

Differentiate a social science and a natural science

Answer 4

• Social science: Study of human behaviour
• Natural science: Scientists observe all aspects of the universe

Question 5

What is the ceteris paribus assumption?

Answer 5

All other influencing factors are kept constant