unit 1.1 economics methodology + problem

• What do economists develop to help explain choices in daily life?

  Models and theories
• What is the risk associated with the assumptions used in economic models?


  They may be criticized for not being realistic
• What does the ceteris paribus assumption mean?

  All other factors remaining constant
• How does the ceteris paribus assumption help economists?

  It allows them to isolate the effect of one variable on another
• If we want to analyze the impact of a price change on smartphone demand, which assumption would we use?

  The ceteris paribus assumption
• Why is economics considered a social science?

  It studies the complex world of human behavior
• What challenge do economists face when conducting experiments?

  People's behavior in a laboratory differs from the real world
• What are the main purposes of economic activity?

  • Production of goods and services to satisfy needs and wants
  • Addressing the basic economic problem of scarcity and choice
  • Deciding what, how, and for whom to produce
• What is the basic economic problem?

  Scarcity and choice
• What choices must societies make regarding goods and services?

  What to produce, how to produce, and who receives them
• How does scarcity affect consumers, businesses, and governments?

  They must make choices due to limited resources
• What is an example of a trade-off in housing decisions?

  Choosing to rent or buy a home
• What does the Cost Benefit Principle involve?

  Weighing the marginal benefits against the marginal costs
• What do rational decision-makers aim to maximize?

  Their welfare
• How does behavioral economics challenge traditional economic assumptions?

  It questions the rationality of many decisions
• What is bounded rationality?


  It refers to the limitations in decision-making capabilities
• What does the phrase "there is no such thing as a free lunch" imply in economics?

  Every choice has an opportunity cost
• What is opportunity cost?

  The cost of the next best alternative foregone
• What is an example of opportunity cost in work-leisure choices?

  Lost wages from not working extra hours
• How does government spending illustrate opportunity cost?

  Spending on one area reduces funds available for another
• What is a free market economy?

  A system where markets allocate resources through the price mechanism
• What role does the government play in a free market economy?

  It protects property rights and the value of currency
• What characterizes a planned or command economy?

  The government owns scarce resources and allocates them
• How does a mixed economy function?

  It has both public and private ownership of resources
• What is rationing in economics?


  A way of allocating scarce goods and services
• How does the price mechanism play a role in rationing?

  It determines which consumers can purchase goods
• What are the factors of production in economics?

  • Land: Natural resources
  • Labour: Human input into production
  • Capital: Goods used to produce other goods
  • Entrepreneurship: Individuals who supply products to make a profit
• What are non-renewable resources?

  Resources that are finite in supply
• What is the significance of renewable resources?


  They can be replaced over time if managed properly
• What are free goods in economics?

  Goods that do not use up any factor inputs when supplied
• What distinguishes positive statements from normative statements?

  Positive statements are objective and can be tested
• What is an example of a positive statement?

  A fall in incomes will lead to a rise in demand for own-label supermarket foods
• What is an example of a normative statement?

  Unemployment is more harmful than inflation
• What is the empirical approach in economics?


  • Focusing on evidence-based work
  • Important for shaping government policies
  • Involves testing and rejecting theories based on evidence