Theme 1.1 - Nature of Economics

Question 1

Why is economics regarded as a social science?

Answer 1

Use of scientific methods to build theories
Deals with real people

Question 2

Why do economists develop theories and models?

Answer 2

Explain behavior of individuals, groups and organisations
Make predictions

Question 3

Describe the process of building an economic model

Answer 3

Develop theories
Use simplifying assumptions to limit variables
Test theories against know facts
Use empirical data (collected from experiment) to revise model

Question 4

What is ceteris paribus?

Answer 4

Economic assumption
‘All other things remain equal’

Question 5

Why/How do economists use ceteris paribus?

Answer 5

To observe relationship between 2+ factors
Assume that only the factor in question changes

Question 6

What does ceteris paribus allow economists to do?

Answer 6

Develop theories/assumptions without overcomplication

Question 7

What are the 2 types of statement that economists make?

Answer 7

Positive - Objective, can be tested
Normative - Subjective, contain value judgement

Question 8

Why may economic decisions not always make the most economic sense?

Answer 8

Deals with real people
Decisions are not always made based upon positive statements (Possibly normative, moral, political etc)

Question 9

What is the basic economic problem?

Answer 9

Wants are infinite but resources are scarce

Question 10

What are the 4 factors of production?

Answer 10

Land - Necessary natural resources
Labour - Workforce with necessary skills
Capital - E.g., Tools, factories, machinery necessary for
production
Enterprise - Entrepreneurs organise factors + are willing to
take risk to start up firms