nature of economics

• Theory is expressed in words
• Models require greater precision and are expressed in mathematical terms
• Simplification in economics involves including some factors and omitting others
• Ceteris Paribus means 'all other things being equal'
• When considering the effect of one economic variable on another, all factors affecting the second variable are kept constant
• Positive statements in economics are based on facts and evidence, without opinions or judgements
• Normative statements in economics are subjective, based on personal judgement and opinions, and cannot be verified
• Scarcity occurs when the demand for a resource is greater than its availability
• Economic goods are resources that are scarce
• Free goods are resources that are not scarce
• People have a limited number of needs that must be satisfied, while human wants are unlimited
• Resources are scarce, but human wants are infinite, leading to the basic economic problem
• Economics is the study of the allocation of scarce resources
• Opportunity cost is the value of the option not taken when making a decision
• Factors of production:

  • Land: natural resources including non-renewable resources (e.g., coal, oil, natural gas), renewable resources (e.g., water, trees, fish), sustainable resources (e.g., wind, solar), and non-sustainable resources (e.g., oil)
  • Labour: the workforce of an economy, including the effort and skill of people
  • Capital: tools, machinery, and physical assets
  • Enterprise: combines the other three factors to make a profit, identify opportunities, and organize resources
• Human capital is the value of a worker