3.1.1.1 ECONOMIC METHODOLOGY

What is economics?

A social science that studies how people seek to satisfy their needs and wants by making choices

Why is economics a social science?

It makes use of models and theories to explain choices

What does real mean vs nominal?

Real is taking inflation out

What is a positive statement?

A factual statement that can be tested and validated

Example of a positive statement?

More of a good is demanded at lower prices

What is a normative statement?

A statement that includes a value judgement and cannot be refuted just by looking at the evidence

Example of a normative statement?

The opportunity cost of spending an extra hour sleeping is always the same

What is a value judgement?

An opinion based on a person's individual values and beliefs

What is an opportunity cost?

The cost of the next best alternative forgone

What is a merit good?

A good which the government believes everyone should benefit from (the NHS, education, police protection)

What is a demerit good?

A good which has a negative impact on consumers/society (vaping, smoking)

They are over consumed and overproduced

What type of judgment is the governments opinion?

A value judgement

What is an economic shock?

An economic shock is a sudden, unexpected event that has a big impact on the economy (covid)

What is a need and what is a want?

Need - something necessary for survival

Want - something which is desired

What is a free good? and an example

Something which has no monetary value - air

What is an economic good?

Something which does have monetary value - have to pay for

What is the basic economic problem?

Unlimited wants and needs but limited resource

• have to make a choice

• leads to an opportunity cost

What is allocative efficiency?

When resources/factors of production are used efficiently and effectively

What are the axis for a MICRO and a MACRO PPF diagram?

MICRO - Good A and Good B

MACRO - Capital goods and Consumer goods

What does regressive mean?

The tax that hits the poorer people

Give an example of a regressive tax

VAT

What does progressive mean?

The higher income earners pay the most in tax

What does inequitable mean?

Fair/equal

Is income tax progressive or regressive?

Progressive

What does Gini coefficient link to?

Equal income distribution