Y1 41) Positive, Normative Statements and Economic Methodology
Summary
TLDRThis video script explains the nature of economics as a social science, focusing on human behavior and choices. It outlines the process of economic theory development, starting from observing consumer behavior to forming hypotheses and predictions. These are tested against real-world evidence, leading to the acceptance or rejection of theories. The script emphasizes economics as a positive science, favoring testable statements over normative opinions, and discusses the law of demand with examples of gifting and veblen goods.
Takeaways
- 🔬 Economics is a social science that studies human behavior and choices, distinguishing it from natural sciences which focus on the universe.
- 🧐 Theories in economics are developed through observing patterns in human behavior, forming hypotheses, and testing these against real-world evidence.
- 📉 Demand theory is an example of an economic theory that originated from observing how consumer behavior changes with price fluctuations.
- ⬇️ A hypothesis is formed when economists notice that consumers tend to spend more when prices are lower, which is then refined into testable predictions.
- 📋 Economists collect empirical evidence to validate or refute their predictions, ensuring that economic theories are grounded in observable data.
- ❌ If evidence contradicts predictions, the hypothesis is rejected, and economists return to observation to form new hypotheses.
- ✅ When evidence supports predictions, such as the correlation between price drops and increased spending, a hypothesis becomes a theory, like the law of demand.
- 🔄 Theories are continually tested to identify any exceptions or sub-theories, such as Giffen goods or Veblen goods, which are rare but can provide insights into economic behavior.
- 📊 Economics values positive statements that can be tested and proven with evidence, in contrast to normative statements that are based on opinions and cannot be empirically tested.
- 🚫 Normative statements, which include value judgments and opinions, are not favored in economics because they cannot be objectively verified or falsified.
Q & A
What is the primary difference between a natural science and a social science?
-Natural science involves observing aspects of the universe and forming theories, while social science focuses on observing human behavior and creating theories around those observations.
Why is economics considered a science?
-Economics is considered a science because it involves testing observations and theories through empirical evidence, similar to the scientific method used in natural sciences.
How does an economist form a theory based on the demand theory?
-An economist forms a theory by observing consumer behavior patterns, forming a hypothesis, making precise predictions, collecting real-world evidence, and testing these predictions against the evidence.
What is the initial step an economist takes when observing consumer behavior?
-The initial step is to form a hypothesis based on observed patterns of consumer behavior, such as the tendency of consumers to spend more when prices are lower.
How do economists test their predictions?
-Economists test their predictions by collecting real-world evidence that either supports or contradicts their hypotheses, allowing them to validate or reject their theories.
What happens if the collected evidence does not support the economist's predictions?
-If the evidence does not support the predictions, the hypothesis is rejected, and economists return to observing consumer behavior to form new hypotheses.
What is the law of demand in economics?
-The law of demand is a theory that states consumers will spend more when prices fall and less when prices rise, based on the evidence supporting the initial hypothesis.
Can there be exceptions to the law of demand?
-Yes, there can be exceptions such as Giffen goods, where demand increases as prices rise, or Veblen goods, where demand is driven by high prices as a status symbol.
What is the importance of testing economic theories repeatedly?
-Repeating tests ensures the robustness of economic theories and helps identify any exceptions or limitations, leading to a more refined understanding of economic behavior.
Why do economists prefer positive statements over normative statements?
-Economists prefer positive statements because they can be tested against factual evidence, unlike normative statements, which are based on opinions and cannot be empirically verified.
What is the role of evidence in establishing economic theories?
-Evidence plays a crucial role in economics as it is used to test hypotheses and predictions, allowing for the formation of theories that are based on observable and verifiable real-world data.
Outlines
📈 Understanding Economics as a Social Science
This paragraph explains the distinction between natural and social sciences, emphasizing that economics falls under the latter as it studies human behavior and choices. The process of economic theory development is outlined, starting from observing consumer behavior to forming hypotheses, making predictions, and testing them against real-world evidence. The paragraph highlights the scientific nature of economics, which involves rigorous testing of theories, and introduces the concept of demand theory as an example. It also touches upon the idea of positive statements in economics, which are testable against evidence, contrasting them with normative statements that are based on opinions and cannot be tested.
🔍 The Role of Positive and Normative Statements in Economics
The second paragraph delves into the importance of positive statements in economics, which are factual and testable, as opposed to normative statements that express opinions and cannot be empirically verified. It clarifies that economics, as a social science, relies on observable and testable theories about human behavior. The paragraph concludes by reinforcing the idea that economists prefer positive statements because they allow for scientific inquiry and evidence-based conclusions, whereas normative statements are more subjective and do not contribute to the scientific understanding of economic phenomena.
Mindmap
Keywords
💡Economists
💡Natural Science
💡Social Science
💡Observations
💡Theories
💡Hypothesis
💡Predictions
💡Evidence
💡Demand Theory
💡Positive Statements
💡Normative Statements
💡Gifting Goods Theory
💡Veblen Goods
Highlights
Economics is distinguished from natural science by focusing on human behavior and choices.
Economics is a social science that tests observations and theories, similar to a natural science.
Demand theory is used as an example to explain how economic theories are formed.
Economists observe consumer behavior patterns to form hypotheses.
Hypotheses are developed into testable predictions about consumer spending.
Economists collect real-world evidence to test their predictions.
If evidence supports predictions, a hypothesis can become a theory, like the law of demand.
Theories are continually tested to ensure their validity and to identify any exceptions.
Exceptions to the law of demand, such as giffen goods, are identified through further testing.
Veblen goods are a rare exception where demand increases as prices rise due to status symbolism.
Economics is a positive subject, with theories tested against factual evidence.
Economists prefer positive statements that can be tested over normative statements based on opinions.
Normative statements are opinion-based and cannot be tested, unlike positive statements.
The process of economic theory formation involves observation, hypothesis, prediction, evidence collection, and theory testing.
Economic theories are not static and are refined through continuous observation and testing.
The video emphasizes the scientific nature of economics and the importance of evidence-based theories.
Transcripts
hi everybody what do economists actually
do well to understand that we first need
to make a distinction between a natural
science and a social science and natural
science is when scientists observe
aspects of the universe and form
theories around their observations
whereas a social science is when
observations are made of human behavior
and theories are then made around those
observations so social science is very
much focused on the study of human
behavior which is what economics is
economics is a study of human behavior
and choices that humans make theories
are then made based on the observations
that economists will see in the real
world but crucially it's still a science
is economics it's a science because we
test all of our observations we test all
of our theories so it's still correct to
say that economics is a science but it's
a social science not a natural science
because we study human behavior
so how can an economist actually come
out with a theory well let's understand
a basic process of how an economist
comes
comes out with a theory in the context
of demand theory
so we know that demand theory is an
actual theory how can it come about well
the first thing that would happen is
economists would observe some
interesting patterns of consumer
behavior for example economists
generally notice that when prices are
lower consumers spend more that's a very
interesting pattern of behavior from
that an economist will form a hypothesis
of how consumers spend so generally an
economist will form a hypothesis an
expectation that when prices are low
consumers spend more money
from that and economies reform more
precise predictions predictions that can
be clearly tested against evidence so
predictions could be that when prices
fall something that can be tested right
when prices fall consumers spend more
whereas in prices rise consumers spend
less these predictions can be clearly
tested but they are formed from the
hypothesis
then economists will go into the real
world and collect evidence evidence that
will either back up the predictions made
or that will falsify the predictions
made the evidence is there to test the
predictions see how economics clearly is
a science because we collect evidence to
test our predictions and therefore to
test whether theories will hold or not
so once the evidence has been collected
from real world observations careful
real world study of consumer behavior
and the evidence collected will either
back up the predictions or not so the
evidence doesn't back up the prediction
so the evidence goes against the
predictions the hypothesis is rejected
and economists go back to square one and
we start again by observing different
consumer patterns different kinds of
consumer behaviors however if the
evidence collected backs up the
predictions i.e it supports the idea
that when prices rise consumers spend
less whereas when prices fall consumers
spend more
then we have the basis of a theory our
hypothesis becomes a theory and that
becomes the law of demand demand theory
there what then happens is that this
theory gets tested even more and more
and more to make sure there are no
chinks in it if there are any chinks i.e
if there are any times where this theory
doesn't always hold then there can be
sub-theories or there can be slight
exceptions to the theory such as gifting
good theory or deviling good theory
giving good theory the idea that when
prices go up consumers buy more because
they switch their income away from
buying other things towards buying this
good or service that's a very unique
idea and that only happens rarely but
that can be an exception to the law of
demand but we can only get that
strengthening of the theory of law of
demand when we further test the theory
and we see that in some cases this
theory doesn't always hold we also get
the idea of babbling good theory the
idea that there are certain real
luxurious goods that consumers only want
to buy when prices are really high
because they're in a status whereby they
feel great because they are the only
people that have an income that can
afford these really ostentatious or
luxurious goods so the idea that when
prices get really high actually demand
can increase because certain consumers
come in and they want that
of you know the fact that they can
actually afford that that's a vetling
good idea but again very rare
circumstance that happens we can get the
idea of gifting goods and beveling goods
only when we further test the basic idea
of demand theory
so that's basically how a theory can
come about in economics but crucially
it's very obvious to see here that
economics is a science economics is a
positive subject all of our theories all
of our observations all of our
hypotheses all of our predictions are
tested against evidence factual evidence
collected from the real world that makes
it a positive subject
where it can be tested all theories can
be tested for that reason in economics
we like positive statements we like to
make arguments we like to say things
that can be backed up or that can be
falsified from evidence
very very important idea in economics
the idea of positive statements we do
not like normative statements which are
opinionated things what are called value
judgments normative statements are often
statements which have the words like you
know should or ought to or it's fair you
know these are normative statements so
it's unfair there are people that live
in poverty it's unfair that the
government is taxing cigarettes the
government should look to subsidize the
production of healthy food these are all
opinions and the problem with opinions
is they can't be tested so it's very
hard for economists to do anything with
opinions whereas positive statements can
always be tested against the facts
against evidence we like those in
economics we can actually do stuff with
those we can study
we can study that a lot more because we
can test them so always bear in mind
that economics is a social science we
observe human behavior
we come up with hypotheses predictions
and theories that can be tested against
real world evidence which means that we
are a positive science we do not like
normative statements thank you very much
guys for watching i'll see you all in
the next video
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