How do economists approach the world?: notes and practice questions
- This topic explores the methodologies economists use to study the world and the historical evolution of economic thought.
- Positive economics describes and explains economic phenomena using logic, hypotheses, models, theories, and empirical evidence, often relying on the ceteris paribus assumption.
- Normative economics involves value judgments in policy making, addressing concepts like equity and equality.
- Key historical economic ideas include Adam Smith's laissez faire, classical microeconomics (utility, margin), Say's law, Marxist critique, the Keynesian revolution, and monetarist/new classical counter-revolution.
- Modern economic thought incorporates behavioural economics and emphasizes interdependencies and the circular economy.
How it is examined
Positive versus normative and the ceteris paribus assumption are the parts most likely to appear, usually as a short Paper 2 definition or inside the framing of a larger question. The schools-of-thought material earns its keep indirectly: a Paper 1 part (a) asking why a Keynesian model predicts a persistent deflationary gap, as SL TZ1 May 2025 Q2(a) did, assumes the student can tell the two schools apart.
- The role of positive economics: the use of logic; hypotheses, models and theories; the ceteris paribus assumption; empirical evidence; refutation. (AO2)
- The role of normative economics: value judgments in policy making, and the meaning of equity as distinct from equality. (AO2)
- The origin of economic ideas in historical context. (AO2) - 18th century: Adam Smith and laissez faire. - 19th century: classical microeconomics and utility; the concept of the margin; classical macroeconomics and Say's law; the Marxist critique of classical thought. - 20th century: the Keynesian revolution; the rise of macroeconomic policy; the monetarist and new classical counter revolution. - 21st century: increasing dialogue with other disciplines such as psychology and the growing role of behavioural economics; growing awareness of the interdependence of economy, society and environment, and the reasons for moving toward a circular economy.
Guiding questions
- How do economists produce knowledge, and where does that knowledge stop being objective?
Linking questions
- The monetarist/new classical versus Keynesian split set up here is the content of 3.2 and drives the AD/AS diagrams used across Unit 3.
- Behavioural economics named here is examined at HL in 2.4.
- Equity versus equality returns in 3.4.
Practice questions
3 questions · 2 easy · 1 mediumQuestion 1
EasyPaper 2 · calculator2 marksText A: Urban transport policy
A study conducted by transport economists examined the relationship between bus fares and commuter ridership. The economists concluded that, ceteris paribus, a 10% reduction in bus fares leads to a 4% increase in passenger journeys across the metropolitan transit network.
Define the term ceteris paribus indicated in bold in the text.
Recall the Latin translation of the term and explain why economic models hold other variables constant when investigating the link between two specific factors.
Question 2
MediumPaper 1 · no calculator10 marks(a) Distinguish between positive and normative economics.
Think about which type of economics relies on testable facts and empirical evidence, and which relies on value judgments and opinions about what 'ought' to be. Use examples to show the difference.
Question 3
EasyPaper 2 · calculator2 marksText A: Economic analysis of electric vehicle subsidies
A policy institute recently published a study examining the adoption of electric vehicles (EVs). The authors concluded that, ceteris paribus, a reduction in the retail price of EVs leads to an increase in the quantity demanded by consumers. However, environmental advocacy groups argued that the government ought to ban petrol-powered vehicles immediately to ensure climate justice.
(a) Define the term ceteris paribus indicated in bold in the text.
Consider the literal meaning of this Latin phrase and why economists isolate two variables by keeping all other influencing factors unchanged.
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Where marks are lost
- No real-world example, or a stated one. An answer that names a country and stops cannot reach the top two bands.
- One-sided argument. Balance is an explicit axis. A student who argues only that a policy works is capped at 9 out of 15 on that axis alone.
- Diagram present but not explained. The diagram bullet escalates across three bands: included, included and explained, included and fully explained. A diagram dropped into an answer without prose that refers to it sits at 5 to 6 on a 10-mark part.
