1.1 Economic methodology and the economic problem (APT)

Value judgements influence economic decision making and policy because value judgements

• are facts that individuals feel might be relevant to a decision

• are evaluative processes that an individual uses solely to prioritise monetary value

• are the foundations of positive decision making when a judgement is required

• are evaluative processes based on an individual's standards or priorities

Which one of the following is a central purpose of economic activity? The production of goods to

• satisfy the needs of consumers

• make a profit for firms

• provide tax revenue for the government

• ensures increased welfare for everyone in the economy

The main methodological difference between Economics and natural sciences is that economists

• cannot test hypotheses in laboratory conditions

• cannot refute hypotheses

• rely on observation to produce evidence

• rely entirely on qualitative data

A positive statement

• is one that can be tested

• Is based on an opinion

• Is one that is true

• cannot be refused by looking at the evidence

A normative statement is

• verifiable by facts

• objective

• based on an opinion

• based on real world data

Which one of the following is a positive statement

• the government should reduce the standard rate of income tax

• the government ought to cut social security benefits

• a cut in social security benefits will increase incentives to work

• there needs to be an increase in defence spending

'Rising unemployment is a price worth paying to get inflation down'. This is an example of

• a theory

• a hypothesis

• a positive statement

• a value judgement

The basis economic problem leads to which one of the following economic decisions that any economy must address

• What the balance should be between the production of consumer and capital goods

• What, how, why and for whom goods and services are produced

• Which goods should be made specifically for the export market and which should be imported

• Which goods should be provided by the public sector and which by the private sector

Economic decision-makers are primarily concerned with

• increasing output

• maximising total welfare in the economy

• reducing prices

• increasing international trade

When making economic decisions, the government is least likely to take account of

• the wages in particular industries

• how the defence budget is spent

• possible changes in average incomes

• the impact on exports