Cambridge International Catalogue 2024 - Final - Flipbook - Page 83
CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS
Study and Revision Guide Third edition
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1 BASIC ECONOMIC IDEAS AND RESOURCE ALLOCATION
Positive and normative statements
KEY CONCEPT
Scarcity and choice: the fundamental problem in economics is that resources are
scarce and wants are unlimited, so it is always necessary to make a choice between
competing uses for the resources and there is always an opportunity cost in making
this choice.
It is important in economics to be able to distinguish between two different types
of statements — positive statements and normative statements.
The basic questions of resource allocation
The emphasis on choice focuses on three basic economic questions:
» what to produce
» how to produce
» for whom to produce
STUDY TIP
Candidates should emphasise the importance of needing to make a choice as a result
of the condition of scarcity. Although choice can apply to various areas of economic
activity, these three economic questions are the most fundamental ones.
KEY SKILL
Problem solving:
understanding the
potential missed
opportunities forgone by
economic agents when
choosing one policy
over another allows for
better decision making.
» A positive statement is one that can be checked against the facts to decide
whether it is true.
» A normative statement, on the other hand, reflects the norms or values of the
person expressing the statement — such a statement will involve a value
judgement and will reflect someone’s personal opinions. Normative statements
often include the words ‘should’ or ‘ought to’. The distinction between facts and
value judgements is therefore very important in economics.
STUDY TIP
Candidates should understand that economics is one of the social sciences, so positive
statements play an important role in the subject, offering an objective approach,
whereas, in contrast, normative statements are more subjective and are reflections of
value judgements.
KEY TERMS
positive statement: a
statement that is factual
and objective
normative statement:
a statement that
is subjective and
expresses a value
judgement
value judgement: an
opinion that reflects a
particular point of view
REVISION ACTIVITY
The three basic economic questions are solved in different ways in various
economies — in other words, resource allocation can be approached through
different systems or mechanisms, as section 1.4 of this chapter shows.
Look inside
NOW TEST YOURSELF
1 Explain what is meant by the ‘economic problem’.
2 Analyse why ‘opportunity cost’ is such an important concept in economics.
View sample material
from our Student’s Books.
1.2 Economic methodology
Economics as a social science
A social science can be defined as the scientific study of human society. Can
economics be regarded as a social science?
» Economics is social in the sense that it studies different aspects of human
behaviour and, in particular, the choices that humans make.
» Economics is a science in the sense that it uses an organised system of theories
and facts capable of making verifiable predictions.
» Economics can therefore be regarded as a social science because it uses scientific
methods to establish theories that can help explain the behaviour of individuals,
groups and organisations in societies.
NOW TEST YOURSELF
3 Discuss to what extent economics should be described as a ‘social science’.
12
Copyright: Sample material
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Read an economics article in a newspaper or a magazine and select three
positive statements and three normative statements.
The meaning of the term ‘ceteris paribus’
» Although economics is one of the social sciences, with many aspects of the
subject involving scientific analysis, it is not really possible to study human
behaviour under laboratory conditions.
» However, economic theory does assume that certain aspects of human behaviour
can be held constant.
» This assumption of ceteris paribus, that other things are equal, means that
economists can analyse one aspect of human behaviour at a time. For example, in
this way it has been possible to put forward economic laws of demand and
supply. These economic theories have been put forward in relation to both
microeconomics and macroeconomics.
STUDY TIP
Candidates should appreciate that it is virtually impossible to keep all variables
constant, and this is why economists use the concept of ceteris paribus to indicate the
idea of ‘everything else being held constant’. This idea can be brought into a number of
answers, such as showing the relationship between changes in the price of a product
and changes in the demand for that product. If ceteris paribus applies, all other
possible influences, such as changes in income, can be assumed to be constant.
KEY TERMS
ceteris paribus: a
Latin term that literally
means ‘other things
being equal’
economic law: an
economic theory put
forward by economists
(e.g. the laws of demand
and supply)
microeconomics: the
study of the behaviour
of relatively small
economic units
(e.g. particular
individuals, households
or firms)
macroeconomics: the
study of economics
at the national and
international levels
REVISION ACTIVITY
Consider whether, without the concept of ceteris paribus, it would be possible
to regard economics as a social science.
Copyright: Sample material
Cambridge International AS & A Level Economics Study and Revision Guide
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for examination from 2023. Study and Revision Guide has not been through the
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