1.2 How do Economists Approach the World? (DP IB Economics: HL): Flashcards
0Still learning
Know0
- FrontEconomic Methodology
Define positive economics.
Was this flashcard helpful?
Cards in this collection (28)
Define positive economics.
Positive economics is concerned with objective statements of how a market or economy works; these are based on empirical evidence and can be proven true or false.
Define normative economics.
Normative economics focuses on value judgements built around opinions and beliefs about the best economic policies or solutions.
True or False?
'The UK unemployment rate fell from 8% to 7.3% last year' is a normative statement.
False.
It is a statement of fact based on data that can be proven true or false, so it is a positive statement.
Normative economic statements can usually be identified by the word .
Normative economic statements can usually be identified by the word should.
Define ceteris paribus.
Ceteris paribus is Latin for 'all other variables remain constant', which lets economists simplify a model to analyse the relationship between just two variables.
In classical theory, what does it mean for an agent to be rational?
A rational agent considers the outcomes of their choices and selects the option with the highest net benefits.
How is a consumer assumed to act rationally?
A consumer is assumed to act rationally by maximising their utility.
How is a producer assumed to act rationally?
A producer is assumed to act rationally by maximising their profits.
True or False?
The assumption that economic agents always act rationally is flawed.
True.
Consumers are often influenced by emotional or impulse decisions rather than a rational computation of net benefits.
Define refutation.
Refutation is the act of a statement or theory being proved wrong by empirical evidence, which helps determine whether a statement is positive.
What method do social sciences use instead of controlled experiments?
They use the social scientific method, gathering empirical research through observations, surveys and opinion polls.
How does equity differ from equality?
Equity concerns fairness in the distribution of resources, whereas equality concerns everyone being equal and having equal recognition.
Statistics on inequality would be considered economic statements.
Statistics on inequality would be considered positive economic statements.
Studying the evolution of economic thought helps us understand the strengths and weaknesses of the economic we use today.
Studying the evolution of economic thought helps us understand the strengths and weaknesses of the economic policies we use today.
Define laissez-faire economics.
Laissez-faire ('to leave alone') is the philosophy that there should be no or minimal government intervention in decisions about resource allocation and production.
Define the invisible hand.
The invisible hand describes the unseen free-market forces of demand and supply that coordinate the best allocation of resources, driven by people pursuing their self-interest.
Who is regarded as the father of Classical Economics?
Adam Smith is regarded as the father of Classical Economics; he set out his ideas in The Wealth of Nations in 1776.
Define marginal utility.
Marginal utility is the additional satisfaction gained from consuming one more unit of a product.
True or False?
As more units of a good are consumed, marginal utility usually rises.
False.
Marginal utility usually falls as additional units are consumed, even though total utility keeps rising.
What does Say's law state?
Say's law states that 'supply creates its own demand', as producing goods generates income that is used to demand other products.
What was the basis of Karl Marx's critique of classical economics?
Marx argued that free-market wealth came from worker exploitation, deepening inequality, which would eventually lead workers to revolt.
According to Keynes, how should a government respond to a depression?
By stimulating aggregate demand through increased government spending (fiscal policy), which raises the flow of income.
True or False?
Keynes believed monetary policy was more effective than fiscal policy in a recession.
False.
Keynes argued that fiscal policy was essential and more effective than monetary policy during a recession or depression.
Define monetarism.
Monetarism is a school of thought that emphasises the use of monetary policy to influence an economy.
Which economist led monetarism and influenced Reagan and Thatcher?
Milton Friedman led monetarism in the late 20th century and influenced Ronald Reagan and Margaret Thatcher.
Define behavioural economics.
Behavioural economics combines economics and psychology to understand how and why individuals make economic decisions, recognising they are not always rational.
Behavioural economists use theory, such as opt-out organ donation, to steer people towards better choices.
Behavioural economists use nudge theory, such as opt-out organ donation, to steer people towards better choices.
What are the three principles of a circular economy?
A circular economy aims to eliminate waste and pollution, recirculate products and regenerate nature.
Sign up to unlock flashcards
or