Economic Methodology

• Scarcity


  We have unlimited wants and needs however we have finite resources
• Commodities


  Trade in physical resources e.g gold,oil,copper etc
• opportunity cost


  the value of the next best alternative forgon
• What is the basic economic problem?

  scarcity
• What are the 3 main economic agents?


  -Firms,

  -Individuals (consumers and workers)

  -Government
• What do consumers aim to maximise ?

  utility/satisfaction
• What do workers aim to maximise?

  -wages

  -Job security

  -working conditions
• What do firms aim to maximise?

  Profit
• What do Governments aim to maximise ?

  -social welfare

  -economic growth
• What is Economic activity ?

  The production,distribution, and consumption of goods and services within an economy
• What is the central purpose of economic activity?

  To allocate scarce resources to meet the unlimited wants and needs of individuals and society as a whole
• What are the 3 basic questions of economics?

  -What to produce?

  -How to produce?

  -For whom to produce?
• What is a free market?

  economic system in which prices are determined by supply and demand
• What is a mixed market?

  Mixture of private firms and government
• What is a command market

  Market controlled by government
• What are the main economic resources?

  The 4 factors of production:

  Capital

  Enterprise

  Land

  Labour
• What is the reward for land

  Rent
• What is the reward for labour

  wages and salaries
• What is the reward for capital

  Interest
• What is the reward for enterprise

  profit
• What is a renweable resource?

  Natural resources that can be replenished or replaced over time
• What are non-renewable resources?

  Resources that are finite in supply
• What does the rate of extraction depend on

  Market price

  (higher prices=faster rate of extraction)
• Why is economics a social science?

  It deals with human behaviour and how people's behaviours affect the way markets and economies work
• What is inflation?


  Increase in prices across the economy
• What is the cost of living?

  When wages don't increase with inflation level
• What is purchasing power?

  How many goods and services your cash money can buy
• Facts


  Information that is established by examining random sample and forming judgements

  (They're often inferred through statistics)
• What is a hypothesis

  A hypothesis is an explanation that can be used to destine world and predict relationships
• Similarities to natural sciences

  -Empirical Observations (use it to gather data and evidence)

  -Data Analysis (use to identify patterns,relationships,trends)

  -Modeling(use models to represent and explain complex phenomena)
• What is data analysis?

  A method in which data is collected and organised so that you can discover helpful information from it
• What is Empirical observation?

  direct observation of nature
• What is modeling?


  the illustration of observed behavior
• Differences to natural sciences

  -controlled experiments (natural scientists conduct controlled experiments whereas economists often use observational data)

  
  

  -predictability (natural scientists have a higher degree of predictability because natural phenomena follows physical laws——whereas human behaviour is unpredictable for economists)
• Ceteris Paribus


  "other things being equal"
• Explain "ceteris paribus"


  -isolate a specific variable and keep all other relevant factors constant

  
  

  -consequently, this allows economists to analyse relationships between variables without the complications of other influencing factors
• What are positive statements?

  Objective statements that can be tested and evaluated by referring to the empirical evidence
• Positive statements: descriptive

  describing the world as it is (e.g "minimum-wage laws cause unemployment")

  
  

  These don't contain value judgements or opinions

  
  

  They often involve cause and effect theories (e.g minimum wage laws=cause, unemployment=effect)

  
  

  -They are used for economic analysis,predictions and empirical research
• What is a normative statement?

  a subjective statement that includes a value judgement
• A normative statement is one that Involves:

  Personal beliefs

  Moral considerations

  Policy preferences

  
  

  -they are not testable through empirical analysis alone