economics Y1 Economic methodology Flashcards
Y1 progress exams
What is economics
A social science
what is a social science
A social science is when observations are made based on human behaviour and theories are made based on these observations
How is an economic theory made
- The consumers behaviour is observed
- A hypothesis is then formed based on the observation
- Predictions are then made based off the hypothesis
- Evidence is used to test the predictions
Economic theory: What happens when evidence doesnt support the prediction
The hypothesis is rejected
Economic theory: what happens when evidence supports the prediction
Hypothesis becomes a theory
Further tests are then conducted to test the theory
Economic theory: what happens when the hypothesis is occasionally true
The hypothesis will become a sub Theory
What is a positive statement?
A positive statement is an objective statement that describes how the world can be tested using empirical evidence
Example: “programmes like welfare reduce the incentive for people to work”
What is a Normative statement
A normative statement is a statement that makes a value judgement about what ought to be
Example: “Paying people who arent working even though they could work is wrong and unfair”
What is a valuee judgement
A value judgement is an evaluative statement of how good/bad you think an idea is: An opinion
What type of view is a value judgement
Normative- can be expressed revealing certain attitudes
Where are value judgements common
Value judgements are ordinary in governments and vary from person to person, resulting in a feirce debate
What does the term “ceteris paribus” mean?
The ceteris paribus assumption is used by economists to simplify analysis. This assumes all other influencing factors remain constant
What is the basic economic problem?
The basic economic problem is the inability to satisfy unlimited wants and needs within a population; using scarce resources
What are the main limited resources in the economy?
Capital
Enterprise
LAnd
LAbour
What is Capital?
Capital can be defined as the physical or financial resources used to produce value in an economy
What is enterprise?
enterprise can be defined as an activity or project that produces goods or services
What is Land?
The physical space for fixed capital as well as natural resources: coal, oil, water
What is labour
The human capital: Human efforts in producing goods and services within the workforce
What questions arise from the basic economic problem
What to produce?
Who to produce for?
How to produce?
What is ment by the term “opportunity cost”
the next best alternative forgone when a choice is made.
What happens when the value of the alternative> the value of the chosen
allocation of resources to alternative rather than allocating resources to the current choice
what happens when the value of the choice> the value of the alternative
continue to allocate resources to the current choice rather than the alternative
What are consumers looking to maximise
Utility
What is meant by the term utility
Utility is a measure of thr ammount of satisfaction gained from an economic activity
