1.1.1 + 1.1.2: Economics as a social science, Positive and normative statements

What is ceteris paribuus

• “All other things remain equal’’

• E.g: when there is a change in income, demand will shift

Developing models

• Economists develop models to explain how the economy works

• The words theory and model are used interchangeably

• The purpose of models and theories is to explain why something as it is- they are simplified to make them more useful

• There are too manuy variables which can chane within an economic model and o assumptions must be made

Scientific experiments

• Economics is a social science, so unlike natural sciences, it is difficult to set up experiments and test hypotheses

• Other variables are always changing so it is difficult to decide whether or not evidence suports or disagrees with a hypothesis

What is a positive statement

• A statement which is objective and made without any obvious value judgements or emotions

• E.g: Raising taxes will lead to an increase in tax revenue

• They can be tested to be proven or disproven and they are often expressed in the form of a hypothesis that can be analysed and evaluated

• Statements about the future can be positive if they can be proven or disproven in the future

What is a normative statement

• A statement which is subjective and based on opinion, so cannot be proven or disproven

• It often includes words such as ought, maybe, should etc. or says that one action is better than another

• Eg: The free market s the best way to allocate resources

The role of value judgments

• Economists tend to use positive statements to back up normative statements

• E.g: The government should increase the interest, the rate of inflation is at 5%

• Value judgements can influence economic decision making and policy

• Different economists may make different judgements from the same statistic, eg: rising inflation could mean different things