Economic Methodology

Question 1

Define the term “Economics”

Answer 1

Economics can be defined as the study of how to allocate scarce resources in the most efficient way

Question 2

What are the two main divisions of the study of economics?

Answer 2

Microeconomics and Macroeconomics.

Question 3

Define microeconomics and provide an example.

Answer 3

the study of individual markets (households {consumers} and firms {businesses})
ex: factors that explain why consumers buy some goods and not others

Question 4

Define macroeconomics and provide an example.

Answer 4

Macroeconomics is the study of an economy or a group of economies.

For example, macroeconomics would examine the factors contributing to the growth rate of a country’s GDP.

Question 5

How does economics qualify as a social science?

Answer 5

The scientific process in economics involves formulating, testing, and refining theories based on empirical evidence.

Question 6

Define Models

Answer 6

Models are a simplified view of reality used to explain economic problems and issues.

Question 7

What are positive statements in economics, and provide examples.

Answer 7

Positive statements in economics are statements based on facts or actual evidence.

Examples include: “A fall in supply of petrol leads to an increase in its price” and “The inflation rate in 2021 is 8%.”

Question 8

What are normative statements in economics, and provide examples.

Answer 8

Normative statements in economics involve subjective opinions, value judgments, or recommendations.

Examples include: “A fall in the supply of petrol should lead to an increase in its price” and “The inflation rate of 8% in 2021 was the worst in 10 years.”

Question 9

What does the term “ceteris paribus” mean in economics?

Answer 9

Ceteris Paribus: A Latin phrase meaning ‘other things equal’ or other things are unchanged’.

Question 10

Why do economists use the term “ceteris paribus”?

Answer 10

Economists use “ceteris paribus” to focus on one change while pretending that everything else stays the same. This helps understand how things are connected.

Question 11

What are the short run, long run, and very long run in economics?

Answer 11

Short run: time period when a firm can change at least one but not all factor inputs. ONLY ONE

Long run: time period when all factors of production are variable but with a constant, such as the state of technology. EVERYTHING VARIABLE BUT WITH CONSTANT

Very long run: time period when all key inputs into production are variable. EVERYTHING VARIABLE