4.1.1.1 Economic methodology Flashcards
Students should understand how thinking as an economist may differ from other forms of scientific enquiry.
Why is economics considered a social science?
Because it looks at the behavior of humans and their use of scarce resources.
In what way is economic methodology similar to other sciences?
The use of simplifying assumptions such as ceterus paribus, and the testing of theories and models against relevant known facts.
What is ceteris paribus?
“All other things remaining equal” is a assumption used to make looking at the relationship between two factors easier.
What is a normative statement and give an example.
A normative statement is one that contains a value judgement, an opinion. An example is “The use of cars should be banned.”
What is a positive statement and give an example.
An objective statement that can be tested against facts. An example would be “500 people die every year to sharks” it does not matter if its true or not.
What are three things someone might base a decision on.
Moral views, short term positive consequences and political judgement.
How might a decision be influenced by a political judgement?
Lowering taxes may win votes however once the election is won the government won’t have as much spending power.
Why is choice an important element in the economic problem?
Limited resources have different applications so a choice must be made of where to allocate the resources.
What are the four factors of production?
Capital, Enterprise, Land and Labor.
What is the economic problem?
How can scarce resources be used to satisfy people’s infinite need and wants as effectively as possible?
Why is the following not a normative statement? “2 year old children are 100% more likely to commit murder than an adult over 18.”
Because it can be tested against facts.
What does the existence of scarcity imply?
That individuals must make choices.
What’s an example of an economic consumption activity?
Someone enjoying the flowers in a public park.
What’s one reason that the free market fails to achieve optimal allocation of resources?
Because there is underproduction of goods with positive externalises.
