3. Methodology of Economics

Question 1

What does “ceteris paribus” mean?

Answer 1

All other things equal.

Question 2

Why do economists use the assumption ceteris paribus?

Answer 2

When economists want to test the effect of one variable on another, they need to isolate the effect of the one variable by assuming that there is no change in any of the other variables.

Question 3

What are the two standard ways in which economists approach the world?

Answer 3

Positive economics and normative economics.

Question 4

What is “positive economics” concerned with?

Answer 4

The facts and what actually is happening or what will happen. Can be used to explain causal relationships.

Question 5

What is “normative economics” concerned with?

Answer 5

How things should be; involves subjective value judgements, and often includes opinion-based words.

Question 6

Is the following an example of a positive statement or a normative statement?

“The unemployment rate in Greece is higher than the unemployment rate in Germany.”

Answer 6

Positive statement.

Question 7

Is the following an example of a positive statement or a normative statement?

“The Spanish government has put too little emphasis on lowering unemployment.”

Answer 7

Normative statement.

Question 8

Is the following an example of a positive statement or a normative statement?

“An increase in income tax will cause a fall in consumer spending.”

Answer 8

Positive statement.

Question 9

Is the following an example of a positive statement or a normative statement?

“Governments should increase the use of renewable energies by putting higher taxes on fossil-fuel based energy.”

Answer 9

Normative statement.

Question 10

Is the following an example of a positive statement or a normative statement?

“The burning of coal, natural gas, and oil for electricity and heat is the largest single source of global greenhouse gas emissions.

Answer 10

Positive statement.