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Economics As A Social Science

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In studying economics and a range of other subjects it is useful to distinguish between positive and normative statements. An understanding of the difference between the two types of statement helps people to appreciate the scope and limitations of economics.

Positive statements are those that deal only with facts. �Hong Kong is now part of China’, �General Motors employs x number of workers’, and �Jane Smith obtained a grade A in Economics’, are all positive statements. If a disagreement arises over a positive statement it can be settled by looking at the facts and seeing whether or not they support the statement. Positive statements must be either true or false, where the word true’ is taken to mean �consistent with facts’.

Normative statements usually include or imply the words �ought’ or �should’. They reflect people’s moral attitudes and are expressions of what some individual or group thinks ought to be done. �Britain should join the single currency’, �more aid should be given to developing countries’ and �income should be distributed more equally’, are all normative statements. These statements are based on value judgments and express views of what is �good’ or �bad’, �right’ or �wrong’. Unlike positive statements, normative statements cannot be verified by looking at the facts. Disagreements about such statements are usually settled by voting on them.


Scientific enquiry, as the term is generally understood, is confined to positive questions. It deals with those questions which can be verified or falsified by actual observations of the real world (i.e. by checking the facts).

One major objective of science is to develop theories These are general statements or principles which describe and explain the relationships between things observed in the world. Theories are developed in an attempt to answer the question Why?’. Tides rise and fall at regular intervals of time, a city is afflicted by smog at certain times of the year, the price of strawberries falls sharply during the summer months. When some definite regular pattern is observed in the relationships between two or more things, and someone asks why this should be so, the search for a theory has begun.


In trying to produce an explanation of observed phenomena, scientific enquiry makes use of procedures which are common to all sciences. These procedures are called the scientific method.

The first step is to define the concepts to be used in such a way that they can be measured. This is necessary if a theory is to be tested against the facts. If the task is to discover a relationship between �income’ and �consumption’, these terms must be defined in a clearly understood manner

The next step is to formulate a hypothesis. This is an untested statement which attempts to explain how one thing is related to another For example, an economist asked to say why prices vary over time might offer the hypothesis that changes in prices are caused by changes in the quantity of money. Hypotheses will be based on observation and upon certain assumptions about the way the world behaves. These assumptions may themselves be based upon existing theories which have proved to have a high degree of reliability. In economics, for example, many theories are based upon the assumptions that people will behave in such a manner as to maximize their material welfare. Using observed facts and making use of certain assumptions, a process of logical reasoning leads to the formation of a hypothesis. This must be framed in a manner which enables scientists to test its validity.

It is now necessary to think about what would happen if the hypothesis is correct. In other words, the hypothesis is used to make predictions (or the hypothesis itself may be framed as a prediction). If the hypothesis is correct, then if certain things are done, certain other things will happen. If the general level of prices is causally related to the supply of money, it may be deduced that an expansion of bank deposits would be followed by an increase in prices.




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