Syllabus points
- Explain the role of models and the assumption of *ceteris paribus*.
- Distinguish positive from normative statements.
- Explain rational decision-making and thinking at the margin.
- Recognise that economics is a social science with competing viewpoints.
Economics as a social science
Economics studies how people make choices under scarcity. Because it deals with human behaviour, it cannot run perfectly controlled experiments the way chemistry can. Instead economists build models — deliberate simplifications of reality that isolate the key relationships.
To make a model workable, economists hold other influences constant using the assumption of _ceteris paribus_ ("other things being equal"). For example, "a fall in price raises quantity demanded, *ceteris paribus*" isolates the price effect from changes in income or tastes.
Key definitions
| Term | Exam-ready definition |
|---|---|
| Model | A simplified representation of reality used to explain and predict behaviour. |
| Ceteris paribus | The assumption that all other variables are held constant. |
| Positive statement | An objective claim about what *is*, testable against evidence. |
| Normative statement | A value judgement about what *ought* to be. |
| Rational behaviour | Decision-makers acting to maximise their own benefit or satisfaction. |
Positive versus normative
- A positive statement can, in principle, be shown true or false with data: "A rise in the minimum wage increased unemployment among young workers."
- A normative statement expresses an opinion and cannot be tested: "The government *should* raise the minimum wage."
Good exam answers separate the two: use positive analysis to explain likely effects, then flag where a conclusion rests on a value judgement.
Thinking at the margin
Economists assume decision-makers are broadly rational — they weigh the extra (marginal) benefit of an action against its extra (marginal) cost. A consumer keeps buying a good while the marginal benefit exceeds the marginal cost, and stops where they are roughly equal. This "marginal" way of thinking underlies demand, supply and firm behaviour throughout the course.
Rational choice: keep doing something while marginal benefit > marginal cost; stop when MB = MC.
Worked example
A student decides how many hours to revise. The first hours bring large gains (marginal benefit is high); later hours bring smaller gains as tiredness sets in. A rational student revises up to the point where the benefit of one more hour just equals its cost (lost sleep or leisure) — not until they collapse.
Common exam mistakes
- Labelling an opinion as "positive" because it *sounds* factual — check whether it could be tested.
- Treating models as if they were reality, rather than useful simplifications.
- Forgetting *ceteris paribus* when explaining a demand or supply change.
Exam technique
When a question gives a policy claim, split your answer: positive analysis of the likely effects (AO2), then evaluation (AO3) noting the normative judgements and the assumptions the model relies on. Behavioural economics (topic 2.4, HL) challenges the strict rationality assumption — a useful evaluation point.
Quick revision
- Models simplify reality; *ceteris paribus* holds other factors constant.
- Positive = testable *is*; normative = value-judgement *ought*.
- Rational decision-makers think at the margin: MB vs MC.