30/01/23
Economic methodology
Economics as a social science
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Economics is a social science because; its social aspect looks at human behaviour in
relation to the satisfaction of human needs and wants; and its science aspect is a
result of economists’ suggesting and investigating theories.
Positive and normative statements
Positive statements
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A positive statement is a statement based on fact.
It is easy to prove whether it is true or false using available facts/evidence.
e.g. the rate of inflation this year in January is greater than that of last year.
Examples of positive statements;
i.
Value Added Tax (V.A.T) was reduced in last years’ budget.
ii.
If prices are reduced by 5%, quantity demanded will increase by 5 %.
iii.
Zimbabwe is in Africa.
iv.
In 2008, inflation in Zimbabwe was higher than that of South Africa.
v.
Botswana is a landlocked county.
Positive statements are factual and objective statements which deal with objective
issues which happen rather than which might/might not happen.
In positive economics, policy makers do not disagree on an issue.
Normative statements
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A normative statement is a statement based on opinion or value judgement of an
individual.
Normative statements cannot be proven whether they are true or false. e.g. Arsenal
will win the English Premier League this year.
Examples of normative statements;
i.
It might rain today.
ii.
The government should reduce corporate tax to encourage economic growth.
iii.
All Chinese men are short.
iv.
Unemployment is more harmful than inflation.
v.
Oliver Mtukudzi is the best musician to have ever come out of Zimbabwe.
Normative statements are generalised, subjective and based on human
judgement/opinion.
They include words such as maybe, should be, might, all, best, ought, most,
deserve.
In normative economics, policy makers disagree on the validity of normative
statements.
Normative economics is also known as policy economics.
Ceteris paribus
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This means; holding all other things constant / all things being equal / all things being
constant/ all other things remaining constant.
When economists are studying a certain concept or pursuing a certain idea, all other
things must remain unchanged (must be held constant).
The importance of time periods.
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In economics, there are three time periods which are; the short run, the long run and
the very long run.
1)
The short run – is the time period in which a firm can change at least one factor of
production, and not all factors of production.
o It is the time period in which labour (a variable resource) can be increased or
decreased in order to change output,
o In the short run, all other factors of production remain unchanged.
o e.g. in the short run, in order to increase output produced, a firm can increase the
number of workers in the factory.
2)
The long run – is the time period where all factors of production are variable but with
a constant. i.e. the state of technology.
o In the long run, it is possible for all factors of production to change. e.g. A firm can
improve the quality and quantity of its capital by building a new factory to increase
output.
3)
The very long run – the time period where all factors and key inputs of production
are variable.
o Key inputs of production include technology, government regulations and social
concerns.