Economics
A tool for deciding how to best allocate scarce resources amongst competing uses.
Economics as a social science
Key definitions
Ceteris paribus
When all other factors are held constant.
Economic model
A simplified way to look at the impact of a change in a factor on the economy.
Social science
Economics is not exact; outcomes have multiple possibilities and depend on many variables.
Scarce resources
Limited resources must be allocated among competing wants in society.
Assumptions
Economists make assumptions in order to build an economic model.
Future outcomes
Economic modelling is often concerned with what may happen, not only what has happened.
Positive statement
A statement that can be tested against evidence.
Normative statement
A value judgement about what ought to happen.
Opportunity cost
The next best alternative forgone when a choice is made.
Key concepts
Economics is a social science because it is not always possible to test outcomes as categorically true or false.
Economists cannot conduct experiments on whole economies and therefore build simplified models.
An effective evaluation technique is to question assumptions in a model, e.g. whether a higher NLW will always reduce unemployment.
Acknowledging ceteris paribus in a model demonstrates specification knowledge in essays.
Relevant tips
- Question model assumptions to build evaluation.
- State ceteris paribus when explaining diagrams.