Year 1 1.1 Economic methodology

The use of logic

rational means economic agents consider the outcome of their choice and recognise the net benefit of each one

consumers

they will maximise their utility

producers

they sell goods/services in a way they maximise their profit

workers 

they balance welfare at work with consideration of pay and benefits 

governments

place the interest of the people they serve first in order to maximise their welfare

ceteris paribus assumption

Translates to ‘all other variables remain constant’

allows economists to simplify and explain causes and effects. using ceteris paribus can simplify economic models to analyse just 2 variables

The social scientific method

Question →Hypothesis(using ceteris paribus)→Empirical research→ Gather data→ Analyse data → Report conclusions 

repeat  

Empirical research

collected through observations, surveys, opinions, polls etc.

-Results of the same hypothesis can vary when conducted by different researchers at different time periods and between different places and culture 

Refutation

is the act of a theory being proved wrong by empirical evidence

economic models

are developed once a hypothesis has been repeatedly proven

positive economics

• concerned with objective statements of how a marker of economy works

• based on empirical evidence and tend to be statements of fact 

• they can be proven true or false 

Normative Economics

• Focuses on value judgements 

• Built around opinions and beliefs as to what the best economic policies are 

• often the basis for political manifestos and parties different economic agendas  

Role of Value Judgements

• These ‘influence governments’ choices with regards to the economic policies they adapt

• will impact economic decision making as they are influenced by public reaction 

Factors Affecting people’s choices

• searching for positive outcomes

• moral judgements 

• equity 

• equality