1.2 How Do Economists Approach The World? (DP IB Economics: SL): 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 an economy works, based on empirical evidence and able to be proven true or false.
Define normative economics.
Normative economics focuses on value judgements built around opinions and beliefs about what the best economic policies or solutions may be.
Which word most often signals that a statement is a normative economic statement?
Normative economic statements most often contain the word should.
True or False?
Normative economic statements can be proven true or false using empirical evidence.
False.
Only positive statements can be proven true or false; normative statements are value judgements based on opinions and beliefs.
Define ceteris paribus.
Ceteris paribus is a Latin term meaning 'all other variables remain constant', allowing economists to simplify a model and analyse just two variables.
In classical economic theory, a agent considers the outcome of each choice and selects the one with the highest net benefits.
In classical economic theory, a rational agent considers the outcome of each choice and selects the one with the highest net benefits.
How are consumers assumed to act rationally?
Consumers are assumed to act rationally by maximising their utility.
How are producers assumed to act rationally?
Producers are assumed to act rationally by maximising their profits.
Define refutation.
Refutation is the act of a statement or theory being proved wrong by empirical evidence.
What is an economic model?
An economic model is a simplified version of reality that makes a range of assumptions about behaviour and outcomes.
True or False?
The assumption that economic agents always act rationally is often flawed.
True.
Consumers are often influenced by emotional purchasing decisions rather than a rational computation of net benefits.
Define equity.
Equity is concerned with economic fairness in the distribution of resources.
Statistics on inequality, such as a gender pay gap, would be considered economic statements.
Statistics on inequality, such as a gender pay gap, would be considered positive economic statements.
Define laissez-faire economics.
Laissez-faire ('to leave alone') economics is the philosophy that there should be no, or minimal, government intervention in decisions about resource allocation and production.
Who is widely regarded as the father of Classical Economics?
Adam Smith is widely regarded as the father of Classical Economics, having published The Wealth of Nations in 1776.
Define the invisible hand.
The invisible hand refers to the unseen free market forces of demand and supply that coordinate the best allocation of resources as consumers and producers pursue their self-interest.
Adam Smith's ideas were a natural response to the previous century of government intervention in markets known as .
Adam Smith's ideas were a natural response to the previous century of government intervention in markets known as mercantilism.
Define marginal utility.
Marginal utility is the additional utility, or satisfaction, gained from the consumption of an additional unit of a product.
True or False?
As a consumer consumes more units of a good, the marginal utility from each extra unit usually rises.
False.
The utility gained from each additional unit is usually lower than the previous unit, so marginal utility typically falls as consumption increases.
What does Say's law of markets state?
Say's law of markets states that 'supply creates its own demand'.
According to Karl Marx, where did the wealth of free markets come from?
Karl Marx argued that the wealth of free markets came from worker exploitation, seen in low wages and poor working conditions.
Define monetarism.
Monetarism is an economic school of thought which emphasises the use of monetary policy to influence an economy.
How did Keynes argue governments should respond to a depression?
Keynes argued that governments should stimulate demand by increasing government spending, using fiscal policy to stabilise the economy.
Keynes developed the field of by explaining how aggregate demand is calculated.
Keynes developed the field of macroeconomics by explaining how aggregate demand is calculated.
True or False?
During the Great Depression, Say's law still explained how the economy behaved.
False.
Say's law became obsolete during the Great Depression, as households lacked the income needed to buy goods and services.
Which economist led the monetarist counter-revolution that influenced Reagan and Thatcher?
Milton Friedman was the leading monetarist whose ideas influenced Ronald Reagan and Margaret Thatcher.
Define behavioural economics.
Behavioural economics combines elements of economics and psychology to understand how and why individuals make the economic decisions they do.
What are the three main 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