mac 1-2 notes

Basic Economic Principles Summary

Economic Principle 1: Scientific Method in Economics

• Economists utilize the scientific method in social sciences.
• Involves hypothesis testing and theory confirmation.
• A hypothesis is a working theory on how the world operates.
• Key assumption: ceteris paribus (all else equal) keeps other variables constant when evaluating a hypothesis.
• Use clear assumptions and hypothesis testing for validity.

Economic Principle 2: Positive vs. Normative Economics

• Positive Economics:

  • Factual analysis explaining what is, what was, or what will be.
  • Examines cause-and-effect relationships.
  • Methods available to prove theories true or false.

• Normative Economics:

  • Based on value judgments and subjective opinions.
  • Cannot be proven true or false, only persuaded to change opinions.

• Importance of separation:

  • Positive statements can be tested for truth (e.g., "If the minimum wage is raised, unemployment may increase.").
  • Normative statements express opinions or value judgments (e.g., "The minimum wage ought to be raised.").

• Positive analysis should inform normative conclusions but must be kept distinct to avoid misunderstandings in discussions.