Economics
4.1.1. Economic methodology and the economic problem
Economic methodology
-economics is the study of how the world scarce resources are allocated to competing uses to satisfy
society’s wants.
As a social science, economics attempts to adopt a scientific methodology for observing behaviour of
individuals and groups and then makes predictions based on them.
Positive statements-
They are objective statements that can be tested against facts to be declared either
true or false.
Does not necessarily have to be true
Normative statements-
They are subjective opinions or value judgements that cannot be tested against facts
They often concern views about what individuals, firms or governments SHOULD do,
based on peoples ethical, moral or political standpoint
The nature and purpose of economic activity
Needs, wants and economic welfare
-the main purpose of economic activity is to satisfy society’s needs and wants.
A need is something that human require to survive such as food and shelter
A want is something non-essential for survival, but which people feel improves their
standard of living, or economic welfare, for example a new car
Economic welfare refers to the standard of living, or general wellbeing, of an individual in
society. Satisfying society’s needs and wants leads to an increased economic welfare. Increasing
real GDP per capita is pursued in order for average living standards to increase as this allows
people to satisfy more of their needs than wants.
Economic resources
-a country’s economic resources are known as the factors of reproduction
Capital- man made physical equipment used to make other goods and services. E.g.
Machinery and computer equipment
Enterprise-entrepreneurs are individuals who take business risk in combining the other three
factors of production I order to produce a good or service
Land-all naturally occurring resources, can be divided further into renewable and non-
renewable. E.g. animals and coal
Labour-people involved in production, sometimes referred as human capital. E.g. cleaners
4.1.1. Economic methodology and the economic problem
Economic methodology
-economics is the study of how the world scarce resources are allocated to competing uses to satisfy
society’s wants.
As a social science, economics attempts to adopt a scientific methodology for observing behaviour of
individuals and groups and then makes predictions based on them.
Positive statements-
They are objective statements that can be tested against facts to be declared either
true or false.
Does not necessarily have to be true
Normative statements-
They are subjective opinions or value judgements that cannot be tested against facts
They often concern views about what individuals, firms or governments SHOULD do,
based on peoples ethical, moral or political standpoint
The nature and purpose of economic activity
Needs, wants and economic welfare
-the main purpose of economic activity is to satisfy society’s needs and wants.
A need is something that human require to survive such as food and shelter
A want is something non-essential for survival, but which people feel improves their
standard of living, or economic welfare, for example a new car
Economic welfare refers to the standard of living, or general wellbeing, of an individual in
society. Satisfying society’s needs and wants leads to an increased economic welfare. Increasing
real GDP per capita is pursued in order for average living standards to increase as this allows
people to satisfy more of their needs than wants.
Economic resources
-a country’s economic resources are known as the factors of reproduction
Capital- man made physical equipment used to make other goods and services. E.g.
Machinery and computer equipment
Enterprise-entrepreneurs are individuals who take business risk in combining the other three
factors of production I order to produce a good or service
Land-all naturally occurring resources, can be divided further into renewable and non-
renewable. E.g. animals and coal
Labour-people involved in production, sometimes referred as human capital. E.g. cleaners
