Introduction to Economics

What is economics

A social science, because it looks at the behaviours of people and firms and their use of scarce resources

methodology

a system of methods used in a particular area of study or activity.

Economic methodology used to tackle economics is the same as natural sciences, because

Develop theories and economic models to explain phenomena

Use simplifying assumptions to limit the number of variables in an investigation

Economists can’t conduct

controlled laboratory experiments where only one variable is changed at a time

If an economist examines the impact of price on the demand for cheese, they can’t

keep consumers income constant, because of ceteris paribus

To get around the problem of the existence of multiple variables in an economy, economists use the assumption

Ceteris Paribus

What is ceteris paribus

All other things remaining equal

What is ceteris parbius used for

Examining the relationship between two factors (e.g., price and demand) assumes only these two change, while all other factors (e.g., income, tastes) remain the same (constant)

Economic decisions are based on ____ , because

Opinions and judgements, because economists deal with real people, decisions made will often be made on opinions and judgments

for example decisions might be based on

Normative statements: Opinions influenced by:

Moral views: (e.g., wealth should be shared to reduce poverty).

Political judgements: (e.g., lowering taxes to win votes).

Short-term gains: (e.g., tax cuts may win elections but reduce government income and lead to spending cuts).

What the two kinds of economic statement

Positive statements
Normative statements

What are positive statements

Testable claims based on evidence. With data, these claims can be proven true or false, helping to verify economic ideas.

What are normative statements

Subjective, opinion-based claims involving value judgments. They can't be proven true or false but influence decisions and policies

e.g Normative statement

Fossil fuels should be taxed more than renewables

E.g: Normative statement policy

taxing the rich to redistribute income

Positive statement example

reduced income increases pound shop customers