Unit 1.2 - Economic methodology

• Economics


  The study of how to allocate scarce resources in the most efficient way
• Microeconomics


  The study of individual markets - households and firms

  
• Macroeconomics


  The study of an economy or a group of economies
• Economics as a social science

  • Looks at human behaviour in relation to satisfying human wants and needs
• Positive statement


  A statement that is based on facts or actual evidence
• Positive statements


  • A fall in the supply of petrol lead to an increase in its price
  • The inflation rate for 2023 is 9%
  • An increase in taxation on cars results in fewer cars being sold
  • A 10% increase in tourists in Georgia has created 10% more employment
• Normative statement


  A statement that is based on opinion or value judgement and which cannot be objectively proven
• Normative statements


  • A fall in the supply of petrol should lead to an increase in its price
  • The inflation rate of 9% in 2023 was the worst in 10 years
  • An increase in taxation on cars might result in a fall in demand for new cars
  • A 10% increase in tourist numbers in Georgia is likely to create at least 15% more jobs in the tourist industry
• Ceteris paribus


  1. A situation where 'other things remain equal / unchanged'

  2. Used to model the effects of one change at a time
• Short run


  Time period when a firm can change at least one but not all factor inputs
• Long run


  Time period when all factors of production are variable but with a constant, such as the state of technology
• Very long run


  Time period when all key inputs into production are variable
• Economics is a social science
• Positive statements are based on facts or actual evidence
• Normative statements are based on opinion or value judgement and cannot be objectively proven
• Ceteris paribus is used to model the effects of one change at a time
• The short run is when a firm can change at least one but not all factor inputs
• The long run is when all factors of production are variable but with a constant, such as the state of technology
• The very long run is when all key inputs into production are variable