TANZEEM SIR, ACADEMIA, LEARNER’S POINT, 01752783688

CHAPTER-1
ECONOMICS IS A STUDY OF HUMAN BEHAVIOR AND CHOICES THEY MAKE.

The nature of economics

A scientist can prove the relationships between two variables by conducting experiments. This
is not possible for an economist – an economist does not conduct an experiment to determine
the impact of a 10% increase in VAT. Instead, an economist creates a simplified model of the
economy to look at the impact of such an increase.
HOW ECONOMISTS COME UP WITH A THEORY
FIRSTLY, THEY OBSERVE HUMAN BEHAVIOR THEN FORM HYPOTHESIS, MAKE
PREDICTIONS AND USING EVIDENCE TO TEST PREDICTIONS.
The development of models in economics
Economists try to understand the economy through making assumptions to help them create
models. An understanding of why economists make assumptions in order to simplify their
analysis will be useful. The ability to question and challenge assumptions can be used as an
evaluative tool in each of the themes.
It will be useful to introduce a basic model and consider how the assumptions help simplify it.
Students should also consider how realistic the model is. The PPF could be considered at this
stage. Students could consider how PPF is helpful in simplifying two products to help illustrate
the maximum productive potential, opportunity costs and efficiency, as well as challenge
whether these are realistic assumptions.
The use of the ceteris paribus assumption in building models
Students should explore what ceteris paribus means – assuming other variables remain constant
– and why this is an important assumption for economists to make when considering the
relationships between different variables. Often the impact of one variable on another is
considered – for example, how interest rates affect unemployment – and it is important to
assume ceteris paribus to simplify the analysis.
Positive and normative economics
Positive statements-statements that can be supported by evidence collected from real world.
Normative statements- statements that cannot be supported because it is a value judgement
(opinions words like should, ought to, fair, unfair)

1
TANZEEM SIR, ACADEMIA, LEARNER’S POINT, 01752783688
TANZEEM SIR, ACADEMIA, LEARNER’S POINT, 01752783688

Identify which of the following statements are positive or normative

2
TANZEEM SIR, ACADEMIA, LEARNER’S POINT, 01752783688
TANZEEM SIR, ACADEMIA, LEARNER’S POINT, 01752783688

Statement 1- programs like welfare reduce the incentive for people to work
Statement 2- raising taxes on wealthy people slows economic growth
Statement 3- the government should raise taxes on the wealthy to pay for the poor

3
TANZEEM SIR, ACADEMIA, LEARNER’S POINT, 01752783688