Unit 1.2 - How do economists approach the world?
What you need to know and understand
Key concepts:
Concepts to understand:
- Economic methodology
- The role of positive economics
- The use of logic
- The use of hypotheses, models, theories
- The ceteris paribus assumption
- Empirical evidence
- Refutation
- The role of positive economics
- The role of normative economics
- Value judgments in policy making
- The meaning of equity and equality
- Economic thought
- 18th century: Adam Smith and laissez faire
- 19th century: classical microeconomics (utility); the concept of the margin; Classical macroeconomics (Say’s law); Marxist critique of classical economic thought
- 20th century: Keynesian revolution; rise of macroeconomic policy; monetarist/new classical counter revolution
- 21st century: increasing dialogue with other disciplines such as psychology and the growing role of behavioral economics; increasing awareness of the interdependencies that exist between the economy, society and environment and the need to appreciate the compelling reasons for moving toward a circular economy
Key concepts:
- Scarcity
- Choice
- Efficiency
- Equity
- Economic well-being
- Sustainability
- Change
- Interdependence
- Intervention
Concepts to understand:
- Economics is a social science characterized by interdependence, which focuses on how people interact with each other to improve their economic well-being, influenced and enabled by their values and their natural surroundings.
- The economic world is dynamic in nature and constantly subject to change.
- Economic theories are based on logic and empirical data, using models to represent and analyze this complex reality. Individual and collective motivations and behaviours are complex and diverse, and their understanding entails the interaction of a variety of disciplines such as philosophy, politics, history, and psychology.
- Economic decision-making impacts the relative economic well-being of individuals and societies.
- The central problems of economics are scarcity and choice. This forces societies to face trade-offs, opportunity costs and the challenge of sustainability.
- Debates exist in economics regarding the potential conflicts between economic growth and equity
- and between free markets and government intervention.
- Endless economic growth, based on the consumption of finite resources, cannot continue indefinitely. New economic models and social movements have challenged mainstream opinion about the purpose of growth and how the economy could be redesigned to support long-term prosperity.
TEXTBOOK unit 1.2
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