‘SimpleStudy® 1.1 Nature of Economics @ 1.1 Nature of Economics 1.1.1 Economics as a Social Science Economies is regarded as a social science because it involves the study of societies and the relationships among individuals within those societies. It is focused on the behaviors and interactions of economic agents. Here are some key aspects of economics as a social science: + Developing Economic Models: Economists develop models to analyze various economic phenomena, These models often require assumptions to simplify the complexities of real- life situations. + Ceteris Paribus Assumption: This term means “other things being equal’ and is used to isolate the effect of one variable by holding other relevant variables constant + Scientific Experiments Limitation: Unlike natural sciences, economics cannot conduct controlled laboratory experiments. Instead, economists analyze real-world data to test their models and theories. 1.1.2 Positive & Normative Economic Statements Economics deals with both facts and opinions, leading to two types of statements: * Positive Economic Statements: These are objective statements that can be tested agains facts and are based on empirical evidence. They describe what is or what will be without making value judgments. * Normative Economic Statements: These are subjective statements that contain value judgments and opinions. They prescribe what ought to be based on personal beliefs and societal values. 1.1.3 The Economic Problem The economic problem arises due to the omnipresent issue of scarcity: * Scarcity: There exist unlimited wants but limited resources. This fundamental economic problem forces individuals and societies to make choices about how to allocate resource effectively. + Opportunity Cost: The cost of any choice is the next best alternative foregone. individuals, producers, and governments constantly face trade-offs where choosing one option requires giving up another. 1.1.4 Production Possibility Frontiers (PPF) The PPF is a graphical representation of the potential outputs an economy can produce with given resources:+ APPF shows the maximum combination of goods and services that can be produced whe alll resources are fully and efficiently employed. + Moving along the PPF involves opportunity costs as increasing production of one good requires reducing production of another. + The shape of the PPF curve reflects the law of increasing opportunity costs, demonstrating that resources are not perfectly adaptable for producing different goods 1.1.5 Specialisation & the Division of Labour Specialisation and the division of labour are central concepts in economics: + Specialisation: This occurs when individuals or firms focus on a limited range of tasks or production in which they have an advantage. * Division of Labour: The breakdown of a production process into separate tasks, with each worker or group of workers assigned a particular task. 1.1.6 Free Market Economies, Mixed Economy, and Command Economy Different economic systems determine how resources are allocated: + Free Market Economy: An economic system where resource allocation is determined by supply and demand with minimal government intervention. + Mixed! Economy: An economic system that incorporates elements of both market forces and government intervention. + Command Economy: An economy where the government makes all decisions about wha to produce, how to produce, and for whom to produce. It's crucial for students to understand these foundational concepts in economics as they fort the basis for more complex theories and models covered in later studies.