2. What is a science?
A statement is scientific only if it is open to the
logical possibility of being found false. This
definition means that we evaluate scientific
statements by testing them, by comparing
them to the world about us. (Karl Popper)
3. Most economists see their discipline as scientific
in Popper's sense of the word. Economic
theory makes statements about how facts fit
together, and there are constantly new sets of
facts arising that allow one to test the theory to
see whether the facts are as theory predicts.
However, this process is more difficult for
economists than it is for most physical
scientists.
4. • Unlike physical scientists, economists can
almost never use controlled experiments to
gather facts with which to test theories. Rather
they must use whatever facts the world gives
them and rely on statistical procedures to draw
conclusions
5. • There is a minority of economists, however, who
do not see economics as scientific in Popper's
sense. A group of economists called the Austrian
school, for example, has argued that economics
starts with assumptions and that economic theory
is the logically deduced results of those
assumptions. If the theory does not fit the facts,
one cannot conclude that the theory is wrong, but
only that it is inappropriate to apply the theory in
that particular situation because the initial
conditions do not agree with the assumptions of
the theory.
6. • A positive statement is a statement about what
is and that contains no indication of approval
or disapproval. Notice that a positive statement
can be wrong. "The moon is made of green
cheese" is incorrect, but it is a positive
statement because it is a statement about what
exists.
7. • A normative statement expresses a judgment
about whether a situation is desirable or
undesirable. "The world would be a better place if
the moon were made of green cheese" is a
normative statement because it expresses a
judgment about what ought to be.
• Economists have found the positive-normative
distinction useful because it helps people with
very different views about what is desirable to
communicate with each other
8. • Economists can confine themselves to positive
statements, but few are willing to do so
because such confinement limits what they can
say about issues of government policy. Both
positive and normative statements must be
combined to make a policy statement. One
must make a judgment about what goals are
desirable (the normative part), and decide on a
way of attaining those goals (the positive part).
9. The study of Economics is divided into two parts
Micro Economics
Macro Economics
10. The micro economics studies the behavior of individual
decision making units such as consumers, resource
owners and business firms.
The macro economics is concerned with aggregates
and averages of the entire economy, such as national
income, aggregate output, total employment, total
consumption, savings and investment, aggregate
demand, aggregate supply, general prices etc.