Theme 1 - Intro To Markets And Market Failure Flashcards
How does economics explain how the economy works?
Economists develop models to explain how the economy works , for example theories of supply and demand or the circular flow of income. These are developed by putting forward a model, gathering evidence and then accepting, changing or disregarding the model.
The words “theory” and “model” can be used interchangeably and there is no exact distinction between the two. However, theories can often be expressed in words whilst models, because they require greater precision, are expressed in mathematical terms. The purpose of theories and modelling is to explain why something is as it is. They are simplified to make them more useful.
There are too many variables which can change within an economic model and so assumptions must be made.
What is ceteris paribus?
All other things remaining equal.
It is used because economics makes assumptions when developing models and theories.
How is economics a social science?
Economics is a social science and so, unlike with natural sciences like physics and chemistry, it is difficult to set up experiments to test hypothesis . As the economist has to gather data in the ordinary, everyday world, other variables
are always changing so it difficult to decide whether or not evidence supports or disagrees with a hypothesis. Therefore, economists tend to come up with very different conclusions for a particular set of data.
Some people argue economics is not a science because it studies human behaviour and human behaviour cannot be reduced to scientific law. However, groups of individuals are much more predictable than individuals themselves, and much of economics deals with groups rather than individuals. The laws can not be definite because we cannot know exactly what each individual will do.
