• There are too many variables which can change within an economic model and so
assumptions must be made.
1.2 Ceteris paribus:
➢ All sciences make assumptions when developing models and theories, and this allows
them to simplify the problem. Economists use the term ‘ceteris paribus’ meaning
‘all other things remaining equal’. For example, when there is a change in income,
demand will shift, ceteris paribus.
1.3 Scientific experiments:
• There are many different types of science covering a wide field of knowledge, all linked
by the method of building a model or theory. Theories or models which gain
universal acceptance are called laws.
• However, economics is a social science and so, unlike with natural sciences like
physics and chemistry, it is difficult to set up experiments to test hypothesis. As the
economist has to gather data in the ordinary, everyday world, other variables are
always changing so it difficult to decide whether or not evidence supports or
disagrees with a hypothesis. Therefore, economists tend to come up with very
different conclusions for a particular set of data
• Some people argue economics is not a science because it studies human behaviour and
human behaviour cannot be reduced to scientific law. However, groups of individuals
are much more predictable than individuals themselves, and much of economics deals
with groups rather than individuals. The laws cannot be definite because we cannot
know exactly what each individual will do.
2. Positive and normative economic statements
2.1 Positive statement:
• A positive statement is a statement which is objective and made without any value
judgements or emotions. They can be tested to be proven or disproven and they are
often expressed in the form of a hypothesis that can be analysed and evaluated.
Statements about the future can be positive if they can be proven or disproven in the
future.
• For example, “Raising taxes will lead to an increase in tax revenue” is a positive
statement as it can be tested to see whether it is true or false. Another example is
“Warm weather will lead to an increase in ice cream sales”.
,2.2 Normative statement:
• A normative statement is one which is subjective and based on opinion, so cannot be
proven or disproven. It often includes words such as ought, maybe, unwise, should
etc. or says that one action is better than another
• One example of a normative statement is “The free market is the best way to allocate
resources” as it is suggesting one method of resource allocation is better than another,
which cannot be tested. “The government should increase taxes” is also a normative
statement, since it presents an opinion.
2.3 The role of value judgements:
❖ Economists tend to use positive statements to back up normative statements. For
example, ‘The government should increase the interest rate’ is a normative statement
which can be a backed up by ‘The rate of inflation is at 5%’, a positive statement.
❖ Value judgements can influence economic decision making and policy. Different
economists may make different judgements from the same statistic, for example
rising inflation could mean different things.
3. The economic problem
3.1 Problem of scarcity:
• The basic problem of economics is that of scarcity. People have unlimited wants, as
no one would choose to live at the level of basic human living standards if they can
enjoy more. However, resources are limited.
• Scarcity is a relative concept as resources are not necessarily scarce in themselves but
, they are scarce in relation to the demands placed upon them.
• Some examples of scarcity are water in India and food shortages around the world.
• Due to scarcity, we need to make choice. Economies try to solve the basic economy
problem by working out what to produce, how to produce it and for whom
production should take place.
3.2 Renewable and non-renewable resources:
➢ A renewable resource is resource of economic value that can be replenished or
replaced on a level equal to consumption. For example, oxygen, solar power and fish
are renewable. As long as the rate of consumption is less than or equal to the rate of
replenishment, the stock will not decrease.
➢ A non-renewable resource is a resource of economic value that cannot be readily
replaced by natural means on a level equal to consumption. This includes fossil fuels
such as coal, oil and natural gas.
assumptions must be made.
1.2 Ceteris paribus:
➢ All sciences make assumptions when developing models and theories, and this allows
them to simplify the problem. Economists use the term ‘ceteris paribus’ meaning
‘all other things remaining equal’. For example, when there is a change in income,
demand will shift, ceteris paribus.
1.3 Scientific experiments:
• There are many different types of science covering a wide field of knowledge, all linked
by the method of building a model or theory. Theories or models which gain
universal acceptance are called laws.
• However, economics is a social science and so, unlike with natural sciences like
physics and chemistry, it is difficult to set up experiments to test hypothesis. As the
economist has to gather data in the ordinary, everyday world, other variables are
always changing so it difficult to decide whether or not evidence supports or
disagrees with a hypothesis. Therefore, economists tend to come up with very
different conclusions for a particular set of data
• Some people argue economics is not a science because it studies human behaviour and
human behaviour cannot be reduced to scientific law. However, groups of individuals
are much more predictable than individuals themselves, and much of economics deals
with groups rather than individuals. The laws cannot be definite because we cannot
know exactly what each individual will do.
2. Positive and normative economic statements
2.1 Positive statement:
• A positive statement is a statement which is objective and made without any value
judgements or emotions. They can be tested to be proven or disproven and they are
often expressed in the form of a hypothesis that can be analysed and evaluated.
Statements about the future can be positive if they can be proven or disproven in the
future.
• For example, “Raising taxes will lead to an increase in tax revenue” is a positive
statement as it can be tested to see whether it is true or false. Another example is
“Warm weather will lead to an increase in ice cream sales”.
,2.2 Normative statement:
• A normative statement is one which is subjective and based on opinion, so cannot be
proven or disproven. It often includes words such as ought, maybe, unwise, should
etc. or says that one action is better than another
• One example of a normative statement is “The free market is the best way to allocate
resources” as it is suggesting one method of resource allocation is better than another,
which cannot be tested. “The government should increase taxes” is also a normative
statement, since it presents an opinion.
2.3 The role of value judgements:
❖ Economists tend to use positive statements to back up normative statements. For
example, ‘The government should increase the interest rate’ is a normative statement
which can be a backed up by ‘The rate of inflation is at 5%’, a positive statement.
❖ Value judgements can influence economic decision making and policy. Different
economists may make different judgements from the same statistic, for example
rising inflation could mean different things.
3. The economic problem
3.1 Problem of scarcity:
• The basic problem of economics is that of scarcity. People have unlimited wants, as
no one would choose to live at the level of basic human living standards if they can
enjoy more. However, resources are limited.
• Scarcity is a relative concept as resources are not necessarily scarce in themselves but
, they are scarce in relation to the demands placed upon them.
• Some examples of scarcity are water in India and food shortages around the world.
• Due to scarcity, we need to make choice. Economies try to solve the basic economy
problem by working out what to produce, how to produce it and for whom
production should take place.
3.2 Renewable and non-renewable resources:
➢ A renewable resource is resource of economic value that can be replenished or
replaced on a level equal to consumption. For example, oxygen, solar power and fish
are renewable. As long as the rate of consumption is less than or equal to the rate of
replenishment, the stock will not decrease.
➢ A non-renewable resource is a resource of economic value that cannot be readily
replaced by natural means on a level equal to consumption. This includes fossil fuels
such as coal, oil and natural gas.
