Economic methodology

Question 1

What are models in economics?

Answer 1

Economists develop models and theories, these help to explain choices we make in our life.
- Models are built on assumptions, these can simply analysis, (allow us to think about links between one variable and another. )
- Assumptions are criticised for being unrealistic.

Question 2

What are assumptions?

Answer 2

Initial or prior conditions made before a micro/macro analysis is built
- Simplification of a theoretical idea or economic relationship

Question 3

Ceterius paribus assumption?

Answer 3

All other factors are held constant.

Question 4

Neoclassic economists assumptions

Answer 4

People are rational
People aim to maximise their utility, business profit
People act independently of each other when making decisions
Information needed to make decisions is always accurate + complete

Question 5

Positive statements

Answer 5

Objective statements that can be teste, amended or rejected.

Question 6

Normative statements

Answer 6

Subjective statements (opinions). They carry value judgements. Cannot be tested

Question 7

Role of value judgements

Answer 7

Influencing economic decisions and policy making
- Help us explain why economic policies vary from place to place