1.1.1

Economics as a Social Science

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Economic Methodology and Ceteris Paribus

Economics is considered a social science. Economists develop models to understand behaviour. However, it is impossible to perfectly recreate everything. Therefore, models are based on a set of assumptions.

Thinking like an economist

Thinking like an economist

Economic methodology is similar to that of other social sciences:
- Models and theories are used to explain real world evidence.
- These models use real life data and can be used to make forecasts about the future.
- Statistical analytics can be used to test hypothesise against evidence.
- Nearly all models rely on assumptions and simplifications.

Inability to make scientific experiments

Inability to make scientific experiments

Controlled laboratory tests aren't possible. In real life, economists can't keep variables constant.
Therefore, economists build models based on a set of assumptions.

_Ceteris Paribus_

Ceteris Paribus

Economists rely on the ceteris paribus assumption. This means 'everything else remains equal'.
- So when economists study the relationship between two factors, they'll assume that one factor changes while the rest stay constant.
This is the most important assumption for economists to create functioning models.

1

Introduction to Markets

2

Market Failure

2.1

Market Failure

2.1.1Types of Market Failure 2.1.2Externalities 2.1.3The Deadweight Welfare Loss of Externalities 2.1.4A-A* (AO3/4) - The Externalities of Education 2.1.5Public Goods 2.1.6Information Gaps 2.1.7End of Topic Test - Market Failure 2.1.8Application Questions - Market Failure

2.2

Government Intervention

2.2.1Government Intervention in Markets 2.2.2Subsidies & Price Controls 2.2.3Pollution Permits & Regulation 2.2.4A-A* (AO3/4) - European Emissions Trading 2.2.5State Provision & Information Provision 2.2.6Government Failure 2.2.7End of Topic Test - Government Intervention 2.2.8A-A* (AO3/4) - Government Intervention

3

The UK Macroeconomy

3.1

Measures of Economic Performance

3.1.1Measuring Economic Growth 3.1.2National Income Data 3.1.3Inflation 3.1.4Causes of Inflation 3.1.5Consequences of Inflation 3.1.6Employment & Unemployment 3.1.7Causes & Impact of Unemployment 3.1.8A-A* (AO3/4) - Hysteresis 3.1.9Balance of Payments 3.1.10Current Account Deficit & Imbalances 3.1.11End of Topic Test - Economic Performance 3.1.12Application Questions Macroeconomy

3.2

Aggregate Demand

3.2.1Aggregate Demand 3.2.2Consumption 3.2.3Investment 3.2.4Government Expenditure 3.2.5Net Trade 3.2.6End of Topic Test - Aggregated Demand 3.2.7Application Questions - AD

3.3

Aggregate Supply

3.3.1Aggregate Supply 3.3.2End of Topic Test - Aggregated Supply 3.3.3A-A* (AO3/4) -Aggregate Supply

3.4

National Income

3.4.1National Income 3.4.2Injections & Withdrawals 3.4.3Equilibrium Level of Real National Output 3.4.4Multiplier Effect 3.4.5End of Topic Test - National Income 3.4.6Application Questions - National Income

3.5

Economic Growth

3.5.1Causes of Economic Growth 3.5.2Output Gaps 3.5.3Business Cycle 3.5.4Impact of Economic Growth 3.5.5End of Topic Test - Economic Growth 3.5.6A-A* (AO3/4) - Growth

4

The UK Economy - Policies

4.1

Macroeconomic Objectives & Policies

4.1.1Possible Objectives 4.1.2Demand-Side Policies - Monetary 4.1.3Demand-Side Policies - Monetary 2 4.1.4A-A* (AO3/4) - The Future of Interest Rates 4.1.5Demand-Side Policies - Fiscal 4.1.6Demand-Side Policies in 2007-08 4.1.7Strengths & Weaknesses of Demand Side 4.1.8Supply-Side Policies 4.1.9Supply-Side Policies 2 4.1.10Conflicts Between Objectives 4.1.11A-A* (AO3/4) - Conflicting Incentives 4.1.12Phillips Curve 4.1.13End of Topic Topic - Policies & Objectives 4.1.14Application Questions - UK Policies

5

Business Behaviour

5.1

Business Growth

5.1.1Size & Types of Firms 5.1.2Business Growth 5.1.3Pros & Cons of External Expansion 5.1.4Demergers 5.1.5End of Topic Test - Business Growth 5.1.6A-A* (AO3/4) - Business Growth

5.2

Business Objectives

5.2.1Business Objectives 5.2.2End of Topic Test - Business Objectives 5.2.3Application Questions - Business Objectives

5.3

Revenues, Costs & Profits

5.3.1Revenue 5.3.2Costs 5.3.3Economies & Diseconomies of Scale 5.3.4Profits 5.3.5Profits 2 5.3.6End of Topic Test - Revenue, Costs & Profits 5.3.7A-A* (AO3/4) - Revenue, Costs & Profit

6

Market Structures

6.1

Market Structures

6.1.1Efficiency 6.1.2Perfect Competition 6.1.3Perfect Competition 2 6.1.4Monopolistic Competition 6.1.5Oligopolies 6.1.6The Prisoner's Dilemma 6.1.7Collusion in Oligopolistic Markets 6.1.8A-A* (AO3/4) - Which Factors Affect Collusion?6.1.9Monopolies 6.1.10Price Discrimination 6.1.11Monopsony 6.1.12A-A* (AO3/4) - Models in Economics 6.1.13Contestability 6.1.14Benefits of Contestability 6.1.15End of Topic Test - Market Structures 6.1.16Application Questions - Market Structures 6.1.17A-A* (AO3/4) - Cereal Collusion

6.2

Labour Market

6.2.1Demand for Labour 6.2.2Supply of Labour 6.2.3Labour Market Imperfections 6.2.4A-A* (AO3/4) - Labour Productivity & Unemployment 6.2.5A-A* (AO3/4) - What Level of Unionisation is Good?6.2.6Wage Determination 6.2.7Elasticity of Labour Supply & Demand 6.2.8Intervention in Setting Wages 6.2.9End of Topic Test - Labour Market 6.2.10A-A* (AO3/4) - Labour Markets

6.3

Government Intervention

6.3.1Reasons for Government Intervention 6.3.2Government Promotion of Competition 6.3.3Usefulness of Competition Policy & Examples 6.3.4A-A* (AO3/4) - Modern Competition Policy 6.3.5Privatisation 6.3.6Government Regulation 6.3.7A-A* (AO3/4) - Nationalisation vs Privatisation 6.3.8Government Protection of Suppliers and Employees 6.3.9Impact of Government Intervention 6.3.10End of Topic Test - Government Intervention 6.3.11Application Questions - Government Intervention

7

A Global Perspective

8

Finance & Inequality

8.1

Poverty & Inequality

8.1.1Absolute & Relative Poverty 8.1.2Inequality 8.1.3Inequality 2 8.1.4Lorenz Curve 8.1.5Government Policy on Poverty 8.1.6End of Topic Test - Poverty & Inequality 8.1.7A-A* (AO3/4) - Inequality & Poverty

8.2

Emerging & Developing Economies

8.2.1Measures of Development 8.2.2Factors Influencing Growth & Development 8.2.3Barriers to Development 8.2.4Barriers to Development 2 8.2.5A-A* (AO3/4) - The Bottom Billion 8.2.6Development Strategies 8.2.7Interventionist Strategies 8.2.8Aid 8.2.9International Institutions 8.2.10International Institutions 2 8.2.11End of Topic Test - Emerging & Developing 8.2.12Application Questions - Developing Countries

8.3

The Financial Sector

8.3.1Role of Financial Markets 8.3.2Market Failure in the Financial Sector 8.3.3Role of Central Banks 8.3.4End of Topic Test - The Financial Sector 8.3.5A-A* (AO3/4) - Financial Sector

8.4

Role of the State in the Macroeconomy

8.4.1Public Expenditure 8.4.2Taxation 8.4.3Public Sector Finances 8.4.4End of Topic Test - Role of the State 8.4.5Application Questions - Role of the State

9

Examples of Global Policy

9.1

International Policies

9.1.1Global Debt & Deficit Policies 9.1.2Poverty & Inequality Policies 9.1.3Changes in Interest Rates 9.1.4Competitiveness Policies 9.1.5End of Topic Test - International Policies 9.1.6A-A* (AO3/4) - International Policies

9.2

Policy Responses to Shocks

9.2.1International Tax Policies 9.2.2Problems for Policymakers 9.2.3End of Topic Test - Policy Responses 9.2.4Application Questions - Policy Responses

Jump to other topics

1

Introduction to Markets

2

Market Failure

2.1

Market Failure

2.1.1Types of Market Failure 2.1.2Externalities 2.1.3The Deadweight Welfare Loss of Externalities 2.1.4A-A* (AO3/4) - The Externalities of Education 2.1.5Public Goods 2.1.6Information Gaps 2.1.7End of Topic Test - Market Failure 2.1.8Application Questions - Market Failure

2.2

Government Intervention

2.2.1Government Intervention in Markets 2.2.2Subsidies & Price Controls 2.2.3Pollution Permits & Regulation 2.2.4A-A* (AO3/4) - European Emissions Trading 2.2.5State Provision & Information Provision 2.2.6Government Failure 2.2.7End of Topic Test - Government Intervention 2.2.8A-A* (AO3/4) - Government Intervention

3

The UK Macroeconomy

3.1

Measures of Economic Performance

3.1.1Measuring Economic Growth 3.1.2National Income Data 3.1.3Inflation 3.1.4Causes of Inflation 3.1.5Consequences of Inflation 3.1.6Employment & Unemployment 3.1.7Causes & Impact of Unemployment 3.1.8A-A* (AO3/4) - Hysteresis 3.1.9Balance of Payments 3.1.10Current Account Deficit & Imbalances 3.1.11End of Topic Test - Economic Performance 3.1.12Application Questions Macroeconomy

3.2

Aggregate Demand

3.2.1Aggregate Demand 3.2.2Consumption 3.2.3Investment 3.2.4Government Expenditure 3.2.5Net Trade 3.2.6End of Topic Test - Aggregated Demand 3.2.7Application Questions - AD

3.3

Aggregate Supply

3.3.1Aggregate Supply 3.3.2End of Topic Test - Aggregated Supply 3.3.3A-A* (AO3/4) -Aggregate Supply

3.4

National Income

3.4.1National Income 3.4.2Injections & Withdrawals 3.4.3Equilibrium Level of Real National Output 3.4.4Multiplier Effect 3.4.5End of Topic Test - National Income 3.4.6Application Questions - National Income

3.5

Economic Growth

3.5.1Causes of Economic Growth 3.5.2Output Gaps 3.5.3Business Cycle 3.5.4Impact of Economic Growth 3.5.5End of Topic Test - Economic Growth 3.5.6A-A* (AO3/4) - Growth

4

The UK Economy - Policies

4.1

Macroeconomic Objectives & Policies

4.1.1Possible Objectives 4.1.2Demand-Side Policies - Monetary 4.1.3Demand-Side Policies - Monetary 2 4.1.4A-A* (AO3/4) - The Future of Interest Rates 4.1.5Demand-Side Policies - Fiscal 4.1.6Demand-Side Policies in 2007-08 4.1.7Strengths & Weaknesses of Demand Side 4.1.8Supply-Side Policies 4.1.9Supply-Side Policies 2 4.1.10Conflicts Between Objectives 4.1.11A-A* (AO3/4) - Conflicting Incentives 4.1.12Phillips Curve 4.1.13End of Topic Topic - Policies & Objectives 4.1.14Application Questions - UK Policies

5

Business Behaviour

5.1

Business Growth

5.1.1Size & Types of Firms 5.1.2Business Growth 5.1.3Pros & Cons of External Expansion 5.1.4Demergers 5.1.5End of Topic Test - Business Growth 5.1.6A-A* (AO3/4) - Business Growth

5.2

Business Objectives

5.2.1Business Objectives 5.2.2End of Topic Test - Business Objectives 5.2.3Application Questions - Business Objectives

5.3

Revenues, Costs & Profits

5.3.1Revenue 5.3.2Costs 5.3.3Economies & Diseconomies of Scale 5.3.4Profits 5.3.5Profits 2 5.3.6End of Topic Test - Revenue, Costs & Profits 5.3.7A-A* (AO3/4) - Revenue, Costs & Profit

6

Market Structures

6.1

Market Structures

6.1.1Efficiency 6.1.2Perfect Competition 6.1.3Perfect Competition 2 6.1.4Monopolistic Competition 6.1.5Oligopolies 6.1.6The Prisoner's Dilemma 6.1.7Collusion in Oligopolistic Markets 6.1.8A-A* (AO3/4) - Which Factors Affect Collusion?6.1.9Monopolies 6.1.10Price Discrimination 6.1.11Monopsony 6.1.12A-A* (AO3/4) - Models in Economics 6.1.13Contestability 6.1.14Benefits of Contestability 6.1.15End of Topic Test - Market Structures 6.1.16Application Questions - Market Structures 6.1.17A-A* (AO3/4) - Cereal Collusion

6.2

Labour Market

6.2.1Demand for Labour 6.2.2Supply of Labour 6.2.3Labour Market Imperfections 6.2.4A-A* (AO3/4) - Labour Productivity & Unemployment 6.2.5A-A* (AO3/4) - What Level of Unionisation is Good?6.2.6Wage Determination 6.2.7Elasticity of Labour Supply & Demand 6.2.8Intervention in Setting Wages 6.2.9End of Topic Test - Labour Market 6.2.10A-A* (AO3/4) - Labour Markets

6.3

Government Intervention

6.3.1Reasons for Government Intervention 6.3.2Government Promotion of Competition 6.3.3Usefulness of Competition Policy & Examples 6.3.4A-A* (AO3/4) - Modern Competition Policy 6.3.5Privatisation 6.3.6Government Regulation 6.3.7A-A* (AO3/4) - Nationalisation vs Privatisation 6.3.8Government Protection of Suppliers and Employees 6.3.9Impact of Government Intervention 6.3.10End of Topic Test - Government Intervention 6.3.11Application Questions - Government Intervention

7

A Global Perspective

8

Finance & Inequality

8.1

Poverty & Inequality

8.1.1Absolute & Relative Poverty 8.1.2Inequality 8.1.3Inequality 2 8.1.4Lorenz Curve 8.1.5Government Policy on Poverty 8.1.6End of Topic Test - Poverty & Inequality 8.1.7A-A* (AO3/4) - Inequality & Poverty

8.2

Emerging & Developing Economies

8.2.1Measures of Development 8.2.2Factors Influencing Growth & Development 8.2.3Barriers to Development 8.2.4Barriers to Development 2 8.2.5A-A* (AO3/4) - The Bottom Billion 8.2.6Development Strategies 8.2.7Interventionist Strategies 8.2.8Aid 8.2.9International Institutions 8.2.10International Institutions 2 8.2.11End of Topic Test - Emerging & Developing 8.2.12Application Questions - Developing Countries

8.3

The Financial Sector

8.3.1Role of Financial Markets 8.3.2Market Failure in the Financial Sector 8.3.3Role of Central Banks 8.3.4End of Topic Test - The Financial Sector 8.3.5A-A* (AO3/4) - Financial Sector

8.4

Role of the State in the Macroeconomy

8.4.1Public Expenditure 8.4.2Taxation 8.4.3Public Sector Finances 8.4.4End of Topic Test - Role of the State 8.4.5Application Questions - Role of the State

9

Examples of Global Policy

9.1

International Policies

9.1.1Global Debt & Deficit Policies 9.1.2Poverty & Inequality Policies 9.1.3Changes in Interest Rates 9.1.4Competitiveness Policies 9.1.5End of Topic Test - International Policies 9.1.6A-A* (AO3/4) - International Policies

9.2

Policy Responses to Shocks

9.2.1International Tax Policies 9.2.2Problems for Policymakers 9.2.3End of Topic Test - Policy Responses 9.2.4Application Questions - Policy Responses

Practice questions on Economics as a Social Science

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1
Similarities between economics and other social sciences:True / false
2
Differences between economics and other natural sciences:True / false
3
What is the meaning of 'ceteris paribus'?Multiple choice

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Positive & Normative Economic Statements