Economic Methodology and the Economic Problem

• What is a key assumption made by economists when analyzing events?

  Ceteris paribus
• What does the term ceteris paribus mean in economics?

  It means that other things are being held equal or constant, so nothing else changes.
• Why can't economists conduct scientific experiments like those in natural sciences?

  Because they often deal with complex real-life scenarios that cannot be easily isolated.
• What do economists use to analyze real-life scenarios?

  Models
• What is the importance of distinguishing between fact and fiction in current affairs?

  It helps in understanding the validity of economic statements and policies.
• What type of statements are positive statements?


  Objective statements that can be tested with factual evidence.
• How can positive statements be evaluated?

  They can be tested with factual evidence and can be accepted or rejected.
• What words should you look for to identify positive statements?

  Words such as 'will' and 'is'
• Which of the following is an example of a positive statement?


  “Raising the tax on alcohol will lead to a fall in the demand for alcohol.”
• What is another example of a positive statement?


  “Higher temperatures will lead to an increase in the demand for sun cream.”
• What is the key characteristic of positive statements?


  They can be tested, and the results can be examined.
• What are normative statements based on?


  Value judgements
• How do normative statements differ from positive statements?

  Normative statements are subjective and based on opinion, while positive statements are objective.
• What words should you look for to identify normative statements?

  Words such as 'should'
• Which of the following is an example of a normative statement?


  “The free market is the best way to allocate resources.”
• What is another example of a normative statement?


  “The government should increase the tax on alcohol.”
• How can value judgements influence economic decision making and policy?

  Different economists may make different judgements from the same statistic.
• How can people's views influence their economic decisions?

  They are influenced by the positive consequences of different decisions and by moral and political judgements.
• What are the differences between positive and normative statements?

  • Positive statements:
  • Objective
  • Can be tested with factual evidence
  • Can be accepted or rejected
  • Normative statements:
  • Subjective
  • Based on value judgements
  • Cannot be tested
• What is the purpose of economic activity?

  To produce goods and services which satisfy consumer needs and wants
• What are the inputs used in economic activity referred to as?

  Factors of production
• What do economists have to decide regarding scarce resources?

  How to use them effectively
• What are the key questions economists face regarding production?

  • What is to be produced?
  • How should it be produced?
  • Who will benefit from the goods and services produced?
• Who faces the decision of what to produce?

  The government and private sector
• What must be considered when deciding how much of each good to produce?

  The problem of opportunity cost
• What does the question "How should it be produced?" consider?

  How the goods and services produced will be distributed
• What do firms aim to achieve in production?

  Minimize costs and maximize profits
• What factors do firms consider to decide between labor-intensive and capital-intensive production?

  The cost and productivity of each factor of production
• Who benefits from the goods and services produced?

  Consumers who have purchasing power
• What determines who gets the goods and services produced?

  Those who are willing and able to pay the price charged
• What are the factors of production in economics?

  Land, labour, capital, and enterprise
• What does the acronym CELL stand for in the context of factors of production?

  • Capital
  • Entrepreneurship
  • Land
  • Labour
• What is the reward for capital in the production process?

  Interest from the investment
• What is the role of entrepreneurship in the factors of production?


  It involves managerial ability, taking risks, and innovating
• What is the reward for land in the production process?

  Rent
• What does labour refer to in economic terms?

  Human capital, which is the workforce of the economy
• Why is the environment considered a scarce resource?

  Because there are only a limited amount of resources on the planet
• What are the two types of resources mentioned in the study material?

  • Renewable resources
  • Non-renewable resources
• What characterizes renewable resources?

  They can be replenished over time
• Give an example of a renewable resource.

  Oxygen, fish, or solar power