Economic methodology

CAIE Alevel Economics (AS)

Content

Table of Contents

Macroeconomics: the study of an economy or a group of economies.
- Economy: the system of making money and producing and distributing goods and services within a country or region
Microeconomics: the study of individual markets (households and firms).
Economics is a social science.
The 'social' aspect: economics looks at human behaviour, particularly in relation to satisfying human needs and wants.
The 'science' aspect: economists put forward and investigate theories in the same way as scientists.
- Like scientists, economists put forward new ideas that seek to explain the ever and rapidly changing global economy in which we all work and live.
The theories put forward by economists are often referred to as models.
- Models: a simplified representation of what has actually taken place and are usually explained mathematically.

Positive statement: a statement that is about facts (objectivity), thus can be verified being true or false (but it doesn’t need to be true),
- i.e. the statement is testable
Normative statement: a value judgment about whether a situation is subjectively desirable or undesirable,
- i.e. an opinion

Short run: at least one variable/factor is fixed, e.g. physical capitals such as size of factory, so the response to price changes is limited
Long run: all factors of production are variable, production is bounded by technology and government rules
Very long run: all factors of production, technology and government rules are variable

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