Economic Methodologies Flashcards
What is economics as a social science?
Economics is a social science which seeks to explain the economic basis of human societies. It studies the human behaviour as relationship between unlimited wants and scarce resources. How societies and individual will decide on the allocative process will clearly depend on the nature of the individual and society. Economics attempts at explaining how households, firms, and governments effect their choices in the everyday business of life.
Economics is regarded as a social science because whatever is claimed can be tested. This is made of scientific methods of observation, experimentation and research to study social behaviour of economic agents - consumers, workers, producers and the government. The methodology of economics is on measurement, experiment, forecasting and models- a simplified view of reality used to explain economic problem and issues.
However, as social sciences conditions are constantly changing and human behaviour is not entirely predictable, identical experiments may not yield the same answer each time.
What is microeconomics?
Microeconomics is the study of particular markets and sections of the economy rather than the economy as a whole.
Microeconomics studies the behaviour and decisions of individuals, households, and firms.
It deals with individual as consumers and producers and considers sectoral problems and issues.
It shows how consumers maximise satisfaction and producers maximise profits.
It deals with scarcity, choices and opportunity cost at individual and sectoral levels.
Topics like consumer behaviour, the theory of firms, demand and supply and determination of factor income are dealt under microeconomics.
Microeconomics makes use of theory rather than empirical evidences
What is macroeconomics?
Macroeconomics is the study of economic behaviour and decision making in the whole economy rather than individual segments of the economy.
It looks at aggregate variables pertaining the economy as a whole.
It refers to that part of economics which deals with those issues and problems which affect the entire economy.
It deals with national and global issues
It shows how the government goes about effecting choices and how the policies will affect the macroeconomic variables.
Macroeconomics places greater emphasis on using empirical data as evidence to explain changes in the economy.
Hence, it deals with issues like inflation, national income, balance of payments, recession, international trade, economic growth, public finance and so on.
What is positive economics/ statements?
It is a factual statement
It is based on facts and figures on the basis we can prove what we are claiming
They assert alleged facts about the society in which we are living.
These statements carry some consensus and they have an element of certainty.
Positive economics are not likely to be debatable.
They include words like “is” , “will”, or “will be”
What is normative economics or statements
They are emotive or subjective statements
They are based on value judgements which is our judgement about what is right or wrong.
These statements are not based on facts and figures but rather our personal opinions which are bounded by our philosophical, cultural, moral and religious beliefs.
Thus, different people may have a different view about a particular normative issue.
Normative statements include words like “should”, “ought be”, “desirable”, “more harmful” and so on.
What is Ceteris Paribus?
Ceteris Paribus are latin words implying “other things being equal” or “other things remaining constant”. It is a widely used assumption in economics whenever we have to study a variable in isolation. For example, if we are trying to determine the influence of variable X upon variable Y then we have to assume that all other factors influencing Y to remain constant and only allow X to change. In such a case, any change in variable Y can be attributed to changes in X.
Time Periods in Economics
Short - run
It is the time period over which at least one factor is fixed. The firm can change only some and not all factor inputs. Hence, output can be increased by using more variable factors.
Long - run
This is a period of time which is long enough for all factors to be varied. All factors are variable and output can be increased by using more of all factors but technical progress is held constant.
Very long-run
It is a period of time where not only all factor of production are variable but when all key inputs into production are variable. A time when technical progress is taking place, there is research and development and training to increase productivity. Changes in PESTEL factors are made possible in the very long run
