The Scientific Method
Any subject can be a science if it uses the scientific method. This involves the following:
- Observation and measurement of data
- Analysing the data to discover underlying patterns and relationships between variables
- Where consistent relationships are observed between variables, formulating a hypothesis
In physics an example would be how the pressure of a gas of a given mass and at a constant temperature varies with changes in volume. The hypothesis that pressure changes in inverse proportion to volume can be tested by experiment and observation. Where the hypothesis is confirmed (verified) on many occasions, without ever being refuted(shown not to be true), it is regarded as a scientific law.
Economics is a social science because it attempts to use the scientific method and apply it to the study of certain aspects of human behaviour, in particular how societies organise themselves to provide for their material wants.
There are several difficulties in applying the scientific method to the study of economics:
- Difficulties in carrying out experiments under controlled conditions to test a hypothesis. We cannot study economic behaviour in a laboratory. This makes it hard to establish clear cause and effect relationships.
- Economic data is often incomplete, inaccurate or difficult to measure. For instance, GDP and unemployment data are based on estimates.
- Human behaviour is unpredictable and subject to change. This makes it very difficult, for instance to predict how changes in consumer confidence might affect saving or spending.
As a result of these difficulties, economics is more concerned probability statements than cast iron laws. Predictions about future growth or inflation, for instance are unlikely to be completely accurate.
Economists try to build a theoretical ‘model’ of how the economy works. A model is really a set of assumptions, based on observation and measurement of the behaviour of economic variables (rate of inflation, growth rate, unemployment, etc) and how they change in relation to each other.
The purpose of the model is to make predictions about the future course of the economy, and also to allow policy makers to find ways of improving economic performance.
Partial models focus on one aspect of the economy, such as the housing or labour markets. They are called micro-economic models. Such models can be used, for instance, to explain why footballers get paid more than most other sport professionals, or why houses cost more in London than Liverpool.
Economists concerned with the workings of the whole economy are interested in building a macro-economic model, which can be used to help the government manage the economy to achieve goals such as higher growth, lower inflation or a reduction in poverty.
In developing a model, economists have to make certain simplifying assumptions. This is because in the real world any one economic variable is likely to be affected simultaneously by a number of others. To make this problem manageable, economists often use the __ceteris paribus __assumption, that means ‘all other things remain unchanged’. A simple example of this is in price theory, where we can examine the relationship between price and quantity demanded by assuming that the other factors that affect demand, such as income, the price of other goods and so on, are unchanged.
Because economics is a social science, economists need to understand the motivesthat govern people’s economic behaviour. Economists have relied on the so called ‘homo economicus’ assumption; - that individuals are rational and always act to maximise their economic self-interest___. ___This assumption can be used to explain the behaviour of firms (as profit maximisers) and consumers (as utility maximisers).
As a science, economics is concerned with factual __statements. These are statements that can be shown to be __true __or __false __by looking at the evidence. Such statements are called __positive statements.