A Level Economics (9708) Notes – 1.1 Scarcity, Choice and Opportunity Cost

1. What is Economics?

Economics is a social science that studies how individuals, firms and governments make choices when faced with scarce resources and unlimited wants. Since resources are limited, choices have to be made, and every choice involves an opportunity cost.

2. Economics as a Social Science

Economics is classified as a social science because it focuses on human behaviour and decision‑making. Unlike natural sciences, economic outcomes cannot always be tested through controlled experiments. As a result, economists rely on theories, observation and data to analyse economic behaviour.

3. The Economic Methodology Approach

Economic methodology refers to the techniques economists use to study economic problems. It involves forming hypotheses, collecting data, testing theories and refining ideas based on evidence.

4. Economic Models

Economic models are simplified representations of reality used to explain economic relationships and predict outcomes. Models deliberately ignore minor details to focus on the most important variables.

5. Assumptions in Economics

Assumptions are used to make economic analysis manageable. A key assumption used by economists is ceteris paribus, meaning all other factors are held constant. This allows economists to examine the direct relationship between two variables.

6. Rational Behaviour

Many economic models assume that individuals and firms behave rationally. Consumers are assumed to aim to maximise satisfaction, while firms aim to maximise profit. Although real‑life behaviour may differ, this assumption helps economists make predictions.

7. Positive Economics

Positive economics focuses on objective and testable statements. These statements describe what is happening in the economy and can be proven true or false using evidence.

8. Normative Economics

Normative economics involves value judgements and opinions. These statements are based on beliefs about what should be done and cannot be tested using evidence alone.

9. Importance of Value Judgements

Economic decisions often involve value judgements, especially in government policy. Choices may reflect priorities such as fairness, efficiency, economic growth or income equality.

10. Exam Relevance

Understanding economic methodology helps students structure clear arguments, identify assumptions, distinguish between positive and normative statements, and critically evaluate economic theories in examination answers.