1.1.1 Economics as a social science Flashcards
Behavioural economics
Research that adds elements of psychology to traditional models in an attempt to better understand decision-making by investors, consumers and other economic participants.
Ceteris paribus
To simplify analysis, economists isolate the relationship between two variables by assuming ceteris paribus - i.e. all other influencing factors are held constant.
Economic assumptions
In his 1953 essay titled “The Methodology of Positive Economics, Milton Friedman explained why economists need to make assumptions to provide useful predictions. Friedman understood economics couldn’t use the scientific method as neatly as chemistry or physics, but he still saw the scientific method as the basis. Friedman stated economists would have to rely on “uncontrolled experience rather than on controlled experiment.”
Economic model
A simplified representation of economic processes. This representation can be used to gain a better understanding of the theory.
Microeconomics
Study of economics at the level of the individual firm, industry or consumer/household.
Unintended consequences
Outcomes that are not the ones foreseen and intended by a purposeful action.In government intervention in markets there is usually at least one and often many unintended consequences partly because economics is a social science and we cannot predict accurately how producer and consumers will react.
Economics
A social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services.
Models vs theories
Models and “theories” are usually interchangeable but theories usually involve words and models are more mathematical.
Assumption
A thing that is certain to happen without proof
The process of developing models
Putting forward a model / Gathering evidence / Accepting, changing or disregarding the model
Why do we need to make assumptions?
There are too many variables, which can change within an economic model.
Variables
Economists argue whether to include variables or not with justification. Two economists studying the same data may have two very different interpretations due to the variables they focus on. Economists identify the relationship between variables (causal or correlation).
Laws
Theories/models which gain universal acceptance
Why is economics a social science?
It studies human behaviour and human behaviour cannot be reduced to scientific law. However, groups of individuals are more predictable than individuals themselves - the laws cannot be definite because we cannot know exactly what each individual will do.
Why can’t we make scientific experiments?
It is difficult to set up experiments to test hypothesis because as economists collect data in the everyday world, other variables are always changing so it is difficult to distinguish whether evidence supports or disagrees with a hypothesis.
