Section 1

Economic
methodology
and the
economic
problem
 Economic
Methodology
 Economics as a social science
Lionel Robbins gave the best-known definition of
Economics in 1932:
the science which studies human behaviour as
a relationship between ends and scarce means
which have alternative uses
i.e., how resources come to be allocated
between the competing uses of different
industries and consumers
Economics is thus a social science
It applies scientific methodology to the study of
human behaviour
 Similarities to and differences from
methodology in natural and other sciences
Scientific methodology proceeds in stages:
- Questions are framed from observation
- A hypothesis is formulated
- Evidence is gathered to test it
- The hypothesis is either confirmed and becomes
a theory or modified or refuted altogether
This is the approach that economists attempt to
employ in their research
 Similarities to and differences cont.

In natural sciences (biology, chemistry &

physics), much research is carried out by
experiment under laboratory conditions
Generally speaking, experiments cannot be
carried out in economics to test hypotheses
Data has to be collected from society and this
data is subject to constant change
Thus it is difficult to prove or disprove many
economic hypotheses
 Similarities to and differences cont.

Economics deals with people rather than

particles and human behaviour cant be
reduced to laws such as those in physics
It uses probabilities instead the likelihood
that something might happen
Economic theories/models are often criticised
for making simplifying assumptions
But natural scientific laws are often subject to
probabilities and all scientific models simplify
 The difference between positive and
normative statements
A positive statement is based upon facts, i.e.,
it is value free
It can be proven to be true or false
A normative statement is based upon value
judgements, i.e., opinion
It cannot be proven or disproved
http://www.bbc.co.uk/news/magazine-
12748296
 The difference between positive and
normative statements
A positive statement is based upon facts, i.e.,
it is value free
A normative statement is based upon value
judgements, i.e., opinion
http://www.bbc.co.uk/news/magazine-
12748296
The difference has been described as that
between the is and the ought
Which of the following statements are based upon value
judgements and which are statements of fact?
1. The number of unemployed people in the UK is approximately 1.5
million
2. The unemployed are lazy and parasitic
3. Unemployment is a scandal in a wealthy country
4. Unemployment benefit should be cut to encourage those out of work
to find jobs
5. Restricting access to unemployment benefit reduces the number of
those officially out of work
6. Immigration increases the size of the workforce, other things being
equal
7. Immigrants often work in jobs that other people are unwilling to take
on
8. Immigrants take away jobs from people born in a country
9. Immigrants enrich all our lives by adding to cultural diversity
10.Restricting immigration reduces the inflow of labour into an economy
THE POLITICAL SPECTRUM

www.digitalronin.f2s.com/politicalcompass

http://www.gotoquiz.com/politics/political-
spectrum-quiz.html
 The political spectrum

LEFT RIGHT
CENTRE
WING WING

GREEN

LIBERAL
DEMOCRAT

UKIP

LABOUR

CONSERVATIVE

Centrally planned BNP Free market

economy economy
SWP
 The political spectrum

LEFT RIGHT
CENTRE
WING WING

LIBERAL
SWP GREEN LABOUR CONSERVATIVE UKIP BNP
DEMOCRAT

Centrally planned Free market

economy economy
 The political spectrum

LEFT RIGHT
CENTRE
WING WING

LIBERAL
SWP GREEN LABOUR CONSERVATIVE UKIP BNP
DEMOCRAT

ANTI- BIG ROLE CARE FOR HIGHER

EQUALITY FREEDOM INDIVIDUALISM
IMMIGRATION FOR STATE THE POOR TAXES

INTER_ LOWER PRIVATE PRO- PUBLIC

NATIONALISM PRO- BUSINESS
NATIONALISM TAXES PROPERTY IMMIGRATION SERVICES
 The political spectrum

LEFT RIGHT
CENTRE
WING WING

LIBERAL
SWP GREEN LABOUR CONSERVATIVE UKIP BNP
DEMOCRAT

INTER_
EQUALITY INDIVIDUALISM PRO- BUSINESS
NATIONALISM
HIGHER PRO- ANTI-
FREEDOM
TAXES IMMIGRATION IMMIGRATION
CARE FOR BIG ROLE PRIVATE
NATIONALISM
THE POOR FOR STATE PROPERTY
PUBLIC LOWER
SERVICES TAXES
 Economic perspectives

LEFT RIGHT
CENTRE
WING WING
FREE MARKET
INTERVENTIONIST
ECONOMIST

FREE
KEYNESIAN
TRADER

NEO-CON
Assessment
A
D