Economic Concepts and Terminology

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Behavioural economics

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Research that adds elements of psychology to traditional models to better understand decision-making by investors, consumers, and other economic participants.

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Ceteris paribus

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To simplify analysis, economists isolate the relationship between two variables by assuming ceteris paribus, meaning all other influencing factors are held constant.

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Economic assumptions

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Milton Friedman explained why economists need to make assumptions to provide useful predictions, as economics couldn't use the scientific method as neatly as chemistry or physics.

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Economic model

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A simplified representation of economic processes used to gain a better understanding of the theory.

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Methodology

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A system of methods used in a particular area of study or activity.

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Microeconomics

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Study of economics at the level of the individual firm, industry, or consumer/household.

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Moral judgement

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Decisions that evaluate situations, courses of action, and behavior based on intuition, feelings, and emotions.

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Normative statements

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Express an opinion about what ought to be, carrying value judgments.

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Political judgement

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Judgements about policy measures depending upon the political values held.

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Positive statement

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Objective statements that can be tested or rejected by referring to available evidence.