4.1.1.1 Economic Methodology

Question 1

Why is economics as a social science

Answer 1

The classification of economics as a field that studies human behaviour in the context of scarcity and choice within society.

Question 2

What are models in economics?

Answer 2

The tools developed by economists to explain the decision-making processes and interactions in various economic scenarios.

Question 3

What are assumptions?

Answer 3

Assumptions are initial or prior conditions made before a micro or macroeconomic analysis is built.
* Sometimes assumptions are used for simplification of a theoretical idea or an economic relationship

Question 4

What is Ceteris Paribus?

Answer 4

All other influencing factors are held constant.
e.g. “an increase in real income will cause an
increase in demand, ceteris paribus.

Question 5

What are Positive statements?

Answer 5

Objective statements in economics that can be tested and verified through evidence, focusing on explanation and theory testing.
e.g. Higher mortgage interest rates will eventually reduce the average level of house prices

Question 6

What are Normative statements?

Answer 6

Subjective statements in economics that involve value judgments and opinions rather than objective facts.
e.g. High unemployment is more harmful to a country such as the UK than high rates of inflation

Question 7

What is a value judgement?

Answer 7

An evaluative statement of how good or bad you think an idea or action is.
e.g. “The government should improve access to education” is a value judgment (that education is good).

Question 8

What are other assumptions Neo-classical economists make?

Answer 8

• people are rational;
• people aim to maximise their “utility” i.e. their ‘satisfaction’. For
  businesses, this means aiming to maximise their profit;
• people act independently of each other when making their decisions;
• the information needed to make decisions is always accurate and complete.