Economics as a Social Science

Economics is generally classified

as a social science and uses the
scientific method as the basis
for its investigation.

Economics is the
study of how groups
of individuals make decisions
about the allocation of
scarce resources. 1
 The Scientific method
Theories which gain
universal acceptance are
often called “LAWS”.

Example is the law of gravity;

the laws of demand and supply.

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 Economics – the science
 In natural science, such as chemistry
or physics it is easy to use the
scientific method in physics and
chemistry which can take place in
laboratories.

 However, economics is a social science

which is often not possible to set up
experiments to test hypotheses.

 Economics is based on the study of the

behaviour of groups of individuals
which is more predictable than that of
individuals.
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 Theories and M odels
 Theterms “Theory and Model” are
often used interchangeably

 Theories can often be expressed in

words.

 Economic models are

often expressed in
mathematical terms.

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 The Purpose of Modelling
 Whyare theories and models so
important in a science?

 The universe is a complex one.

 Mainreason why we construct theories

and models is because we want to know
why something is as it is.

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 Assumptions and ceteris paribus
 All sciences make assumptions when
developing models and theories.

 Making assumptions allows the

scientist to simplify a problem to make
it manageable to solve.

 Economists simplify reality by adopting

the “ceteris paribus” condition.

 Ceteris paribus is Latin for “All things

being equal” or “All other things
remaining the same”.
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Simplification of the models/theories
 Onecriticism is that economic
theories and models are “unrealistic”

 This is because any theory or model

has to be a simplification of reality if it
is to be useful.

 Simplification
implies that some
factors have been included
in the model and some have
been omitted or distorted to
emphasise particular points
in a model. 7
 .

ECONOMIC
DATA

8
 Importance of Economic Data
 Economic data are collected to
provide a basis for economic
decision making

 Datamay be expressed at nominal

(current) prices or at real (constant)
prices.

 Indicesare used to simplify statistics

and to express averages.

 Data can be represented in a variety

of forms such as tables or graphs. 9
 The Collection and Reliability of Data
Reasons:
To test theories
Provide support for particular
policies

10
 Real and Nominal Values
Nominal and Real Values
 Nominal Value – is the value
measured in terms of the
current year’s price, it is
unadjusted for inflation.

 Real Value – is the value

measured in terms of constant
prices. It is adjusted for
inflation. 11
 Indices
 An index number is an economic data
figure reflecting price or quantity.

 Time series data are often expressed in

terms of index numbers

 One year is selected as the base year and

this is given a value of 100.

 The output for other years is then shown

by their percentage change from 100

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 The Interpretation of Data
 Look at Data With Less Volatility and
Larger Samples
 Look Over Longer Periods
 Combine Different Measures of the Same
Concept
 Understand the Trade-off between
Timely/Partial Data and Less
Timely/More Complete Data
 Be Careful With Data that Has a Longer-
run Trend
 Distinguish Real from Nominal Data

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 Thinking like an Economist
 See page 11

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