The model of economy

closed economy

household provides FOP & recieves payments. firms uses FOP &produces g&s & sells them to households

the circular flow of income

it shows that in any given time period, the value of outut produced in an economy is equal to the total income generated in producing that output, which is equal to the expenditure made to purchase that output

decision makers: households

individual consumers who provide labour services to firms, in return for factor payments

decision maker: Firms

businesses that use FOP to generate or supply g&s. they aim to miaximize profit.

Positive Statement

It seeks to understand & analyse economic behaviour & outcomes based on the scientific method & includes descriptions, models, hypothesis, theories & laws.

Normative Statement

Normative economies involves making prescription or recommendations about how economic outcomes should be based on ethical, moral or political consideration.

Logic

is a method of reasoning involving a series of statements, each of which is true if the preceding statements are true.

Hypotheses

it is the educated guesses about cause-&-effect relationship.

Ceteris Paribus

all other things kept constant

Empirical Evidence

is information derived from idrect observation or experimentation providing factual support for theories or claims.

Theories

is a comprehensive explanation of a set of interrelated events typically based on multiple successful tested hypothesis.

Laws

is a concise statement that describes an event & is considered to have universal validity.

Refutation

involves demonstrating a contradiction or providing something to be false.