4.1.1 – Economic methodology and
Economic Problem
4.1.1.1- Economic methodology
• Economics is a social science looking at the
behaviour of humans as individual or in organisations (e.g. firms) and their use of scarce resources.
• Economists develop theories and models to explain things e.g. interest rates
There are two types of economic statements:
• Normative statements – subjective statements that are based on value judgement and opinions. They
cannot be tested as people have different views of what is right or wrong.
• Positive statements – objective statements that can be tested to see if it is correct.
4.1.1.2- Nature and Purpose of Economic Activity
• Economic activity – mix of factors of production to create outputs that people can consume
Economic
o Goods – products you can touch e.g. kettle
activity → o Services – Things you can’t touch e.g. education, medical appointments
o Consumption – consume goods or services to satisfy a want or need
• The fundamental three questions are:
o What to produce? – goods that firms can make profit from
o How to produce? – firms want to produce goods most efficiently as possible to maximise profit
o Who to produce for? – firms produce goods that consumers want to pay for
• Economic Agents react to Incentives
o Producers – firms or people that make goods and services
o Consumers – firms or people that buy the goods and services
o Governments – produces and consumers goods and services and set rules participants must follow
• Economic Agents make decisions on how the resources are allocated
o Producers – decide what to make and how much to sell it for
o Consumers – decide what to buy and how much they are willing to pay
o Governments – decide how much to intervene in the way producers and consumers act
• In market economy, all economic agents make decisions best for themselves. These are based on economic
incentives like profit or paying as little as possible for a product
4.1.1.3 - Economic resources
The Economic problem - How can available scarce
resources satisfy peoples infinite wants and needs
• Need – something that you need to survive (e.g. food, water, clothes and shelter)
• Want - Goods or services that are not a necessity but wish for them.
Four factors of production:
o Land – natural resources from the sea, earth and sky (renewable and non-renewable).
o Labour – the work done by people (physical and mental).
o Capital – goods used to create other goods and services.
o Enterprise – organises all other factors of production, takes risks and tries to earn a profit.
Economic Problem
4.1.1.1- Economic methodology
• Economics is a social science looking at the
behaviour of humans as individual or in organisations (e.g. firms) and their use of scarce resources.
• Economists develop theories and models to explain things e.g. interest rates
There are two types of economic statements:
• Normative statements – subjective statements that are based on value judgement and opinions. They
cannot be tested as people have different views of what is right or wrong.
• Positive statements – objective statements that can be tested to see if it is correct.
4.1.1.2- Nature and Purpose of Economic Activity
• Economic activity – mix of factors of production to create outputs that people can consume
Economic
o Goods – products you can touch e.g. kettle
activity → o Services – Things you can’t touch e.g. education, medical appointments
o Consumption – consume goods or services to satisfy a want or need
• The fundamental three questions are:
o What to produce? – goods that firms can make profit from
o How to produce? – firms want to produce goods most efficiently as possible to maximise profit
o Who to produce for? – firms produce goods that consumers want to pay for
• Economic Agents react to Incentives
o Producers – firms or people that make goods and services
o Consumers – firms or people that buy the goods and services
o Governments – produces and consumers goods and services and set rules participants must follow
• Economic Agents make decisions on how the resources are allocated
o Producers – decide what to make and how much to sell it for
o Consumers – decide what to buy and how much they are willing to pay
o Governments – decide how much to intervene in the way producers and consumers act
• In market economy, all economic agents make decisions best for themselves. These are based on economic
incentives like profit or paying as little as possible for a product
4.1.1.3 - Economic resources
The Economic problem - How can available scarce
resources satisfy peoples infinite wants and needs
• Need – something that you need to survive (e.g. food, water, clothes and shelter)
• Want - Goods or services that are not a necessity but wish for them.
Four factors of production:
o Land – natural resources from the sea, earth and sky (renewable and non-renewable).
o Labour – the work done by people (physical and mental).
o Capital – goods used to create other goods and services.
o Enterprise – organises all other factors of production, takes risks and tries to earn a profit.
