Economic methodology
Economics as a social science
- Economics studies how people choose. It builds models and tests them with data.
- Ceteris paribus = "all other things stay the same" — change one thing at a time.
- e.g. "if the price of coffee rises, people buy less coffee, ceteris paribus".
Practice
Ceteris paribus means:
Ceteris paribus lets economists study one change while holding everything else fixed.
Positive vs normative
- positive statement — about fact; can be tested true or false ("higher petrol prices reduce demand").
- normative statement — about opinion; says what should happen, rests on a value judgement ("the government should make petrol cheaper").
Practice
Which is a positive statement?
Positive statements are testable facts; the others are opinions (normative).
Micro vs macro
- microeconomics — single parts: one market, firm or consumer.
- macroeconomics — the whole economy: total output, jobs, prices.
Practice
Classify each topic.
Micro studies single parts; macro studies the whole economy.
You've got it
Key idea
- economics is a social science using models and ceteris paribus
- positive = testable fact; normative = opinion (a value judgement)
- micro = single parts; macro = the whole economy