4.1.1.1 economic methodology

Question 1

what is microeconomics?

Answer 1

the study of individual markets, interactions between individual agents (households or firms) exchanging goods and services
eg) the market for rice, the market for plumbers

Question 2

economics is a social science - what does this mean?

Answer 2

• we study human society and social relationship rather than a natural science
  -> using models rather than controlled experiments

Question 3

why does economics adopt a scientific methodology?

Answer 3

for observing the behaviour of individuals and groups
-> then makes predictions based on these observations

Question 4

what do economists use instead of laboratory experiments?

Answer 4

• can’t conduct controlled laboratory experiments where only 1 variable is changed at a time
• people are unpredictable so can’t control variables
• it’s investigated using models
  -> to get around this they use ceteris paribus

Question 5

what are models?

Answer 5

based on simplified assumptions, often illustrates as a diagram

Question 6

what are the two key assumptions?

Answer 6

• ceteris paribus
• rationality

Question 7

define ceteris paribus

Answer 7

ceteris paribus - latin for ‘all other things being equal’

eg) the impact of changes in the price of bread on the price of rice, ceteris paribus, assumes the price of potatoes hasn’t changed as well

Question 8

define rationality

Answer 8

rationality - rational people will process all the info about each economic decision and choose the option that maximised their utility (satisfaction)

eg) at lunch every day you look at every item and weigh up the prices, consider the nutritional content, how active you’ve been today etc. and select the best option

Question 9

what are the disadvantages of using theories/models instead of controlled experiments?

Answer 9

• cannot price it
• no individual info
• expensive

Question 10

what are the advantages of using theories/models instead of controlled experiments?

Answer 10

• cheaper
• quicker
• ethical
• combine with empirical research
• useful group info

Question 11

what are two points of economic decisions?

Answer 11

• might not always make economic sense
• decisions are made by individuals, firms, governments will often be based on opinions and judgements

Question 12

what are normative statements?

Answer 12

a statement which cannot be supported or refuted because it’s a value judgement

• based on moral views/value judgements not factual evidence

eg) view that people shouldn’t live in poverty

Question 13

what are value judgements?

Answer 13

is an assessment of something as good or bad based on one’s own standards or priorities

• political judgements
• short-term positive consequences

eg) lowering taxes may win votes for a government

Question 14

what are positive statements?

Answer 14

statements which can be supported or refuted by evidence

they’re objective