Tuesday, 10 May 2016

Economics methodology- Microeconomics

Economics Methodology

Welcome to the designing brilliance blog and today we will be discussing and talking about economic methodology.

So in economics, economists need to make assumptions. Assumptions on events that may occur or things that may change or stay the same such as whether the shares market may grow or go into decline.  Economists are not able to conduct scientific experiments and therefore use real-life scenarios to make models such as the demand curve and supply curve which was shown in yesterdays post on how markets work? There are two types of assumptions that are made; these are positive and normative statements.

Positive statements- 

They are statements which are objective and therefore can be tested by factual information to be proven true or false. The statements would use words such as 'will ' and or  'is'.

For example "raising the taxes on alcohol will lead to a fall in demand of alcohol and a fall in profits of pub landlords". This is a positive statement.

Another example of a positive statement would be " higher temperatures will lead to an increase in the demand for sun-cream"

The key part to remember when identifying a positive statement is that it includes words such as 'will' and the statement can be tested and results can be examined and then the statement can be accepted or rejected.

Normative statement- 

Normative statements are value judgements; so in essence they are opinion based and can be subjective. They are not based of factual information! Normative statements use words such as 'should' generally.

For example " the free market is the best way to allocate resources" is a normative statement as it is opinion based as it suggests one way is better than another without any factual evidence

Another example of a normative statement would be " The government should increase tax on alcohol".

That's all for today guys. Hope that the information was helpful. If you missed our last post on how markets work?, click here -> how markets work?

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