1.1 Economic methodology and
the economic problem
1.1.1 Economic methodology
Economics is a social science that tries to explain how individuals or economic
agents (consumers, producers or the government) try to make choices.
Positive statements are objective statements that can be tested, amended or
rejected by referring to available evidence - false statement is also a positive
one.
Normative statements are subjective statements - they carry value judgements
about what ought to be (opinions).
1.1.2 The nature and purpose of economic activity
Basic economic problem - unlimited wants but very limited resources.
Economics is the study of how we try to allocate these resources to satisfy
consumer needs and wants.
Decisions have to be made on how to use scarce resources:
What is to be produced?
How should it be produced?
Who will benefit from the goods and services produced?
A ‘need’ something that you must have in order to live and survive i.e. necessities. A
‘want’ is something that you would like to have, but is not essential for survival. In
economies at different stages of development, households might have very different
views on the differences between wants and needs i.e. classifying some
goods/services as needs or wants can be normative.
Economics is concerned with how resources are best allocated in order to satisfy
needs and wants – deciding whether to satisfy needs or wants is important.
1.1.3 Economic resources
1. Land - natural resources available for production
Rent
1.1 Economic methodology and the economic problem 1
the economic problem
1.1.1 Economic methodology
Economics is a social science that tries to explain how individuals or economic
agents (consumers, producers or the government) try to make choices.
Positive statements are objective statements that can be tested, amended or
rejected by referring to available evidence - false statement is also a positive
one.
Normative statements are subjective statements - they carry value judgements
about what ought to be (opinions).
1.1.2 The nature and purpose of economic activity
Basic economic problem - unlimited wants but very limited resources.
Economics is the study of how we try to allocate these resources to satisfy
consumer needs and wants.
Decisions have to be made on how to use scarce resources:
What is to be produced?
How should it be produced?
Who will benefit from the goods and services produced?
A ‘need’ something that you must have in order to live and survive i.e. necessities. A
‘want’ is something that you would like to have, but is not essential for survival. In
economies at different stages of development, households might have very different
views on the differences between wants and needs i.e. classifying some
goods/services as needs or wants can be normative.
Economics is concerned with how resources are best allocated in order to satisfy
needs and wants – deciding whether to satisfy needs or wants is important.
1.1.3 Economic resources
1. Land - natural resources available for production
Rent
1.1 Economic methodology and the economic problem 1
