Economic methodology

Economics AS · Basic economic ideas and resource allocation. The idea in plain words, the rules to remember, the mistake to avoid and a worked example, written and checked by Mega Lecture.

Test this topic free All Economics AS topics

The idea

Economics is a social science. It studies how people behave when they use scarce resources. Economists build theories and compare them with evidence, but they can seldom run controlled experiments, because many things in an economy change at the same time.

To deal with this, economists assume ceteris paribus: all other factors stay the same while one factor changes. This lets them see the effect of that one change.

A positive statement is about facts and can be tested against evidence. A normative statement contains a value judgement about what should happen, so it cannot be proved right or wrong. The time period also matters, because people and firms respond more when they have longer to adjust.

Rules to remember

Positive statement: a statement of fact or prediction that can be tested with evidence. It may turn out to be false.
Normative statement: a statement based on a value judgement. Look for words such as should, ought, fair, too high, better.
Ceteris paribus: all other things being equal (other factors are held constant).
Short run: at least one factor of production is fixed.
Long run: all factors of production can be varied, but technology is taken as given.
Very long run: technology and all other influences on production can change as well.

Common mistake

Students think a positive statement must be true. A statement is positive if it can be tested, even if the test shows it is wrong.

Worked example

Statement 1: "Raising the school leaving age to 18 will lower youth unemployment." Statement 2: "Every young person deserves schooling until 18." Classify each statement.

Statement 1 predicts a result. Data on youth unemployment before and after the change could support it or reject it.
So statement 1 is positive, whether or not the prediction proves correct.
Statement 2 uses "deserves". This is an opinion about what is right, and no data can prove it.
So statement 2 is normative.

Answer: Statement 1 is positive and statement 2 is normative.

Ask about this

Type what you are stuck on. The helper finds the explanation, worked examples and the notes to read, free and instant.

Read the full notes

Keep going

← Scarcity, choice and opportunity cost Factors of production →Take a Economics AS test