1. Nature of Economics

What is economics?

• Social science

• Economists develop models to analyse the behaviour of economic agents (consumers, producers + the government)

• Models based on assumptions

What is ceteris paribus?

All other things being equal → used when building models

What is difficult to do in economics?

Difficult to make scientific experiments because many variables changing constantly in the real world

What are the four factors of production?

• Land

• Labour

• Capital

• Enterprise

What are the two types of resources?

• Renewable resources - resources replenished over time (e.g solar energy)

• Non-renewable resources - resources depleted over time (e.g coal)

What are the two types of goods?

• Consumer goods - products bought by consumers for immediate use

• Capital goods - used for production to make other goods

What are the three questions that economics studies?

• What?

• How?

• For whom?

Who are the four key economists?

• Adam Smith

• Karl Marx

• John Maynard Keynes

• Friedrich Hayek

What are the key viewpoints of the four economists?

• Adam Smith → specialisation + invisible hand (price mechanism sets best price for everyone) → free market

• Karl Marx → communism + government needed → planned economy

• John Maynard Keynes → government needed → mixed economy

• Friedrich Hayek → Only the price mechanism is needed → free market

What is microeconomics?

The study of economic decisions by individual economic agents (e.g households + firms)

What is the economic problem of scarcity?

Unlimited wants but finite resources

What does opportunity cost mean?

The next best alternative foregone (e.g if you pick economics instead of maths, the opportunity cost is maths)

What is a positive statement?

An objective statement that can be proven/disproven by evidence (e.g oil prices are rising)

What is an normative statement?

A subjective statement based on opinion (e.g the government should spend more money on the NHS)