Economics as a Social Science (Cambridge (CIE) A Level Economics): Revision Note
Exam code: 9708
Economics as a social science
Economics is a social science
Social sciences study societies and the human interactions within those societies
Human interactions are complex and are influenced by many variables
Social sciences also include subjects such as Psychology, Politics, Geography and Business Studies
Due to the complexities within societies, economists build models so as to better understand certain interactions
A model is a simplified version of reality
Some models are more complex than others. Examples of models include, the circular flow of income, production possibility curves, demand and supply
All models make a range of assumptions. These are often generalizations about behaviour, choices and likely outcomes
These assumptions are necessary so as to account for complex human behaviour and constantly changing variables
When evaluating different models, the underlying assumptions should always be considered
To think like an economist involves identifying which variables will be studied and which ones will be excluded
This way of thinking considers the type of relationship between variables (causal or correlation). E.g. Data shows that when ice cream sales increase, so do car thefts. Correlation, yes. Causation, no
Some economists will build an argument to include certain variables in a study and others will argue to exclude them. They will each provide a justification for their decision
Two economists analysing the same data may end up with vastly different interpretations. This is often due to the different variables that each economist chooses to focus on
This is the complexity found within social sciences
The social scientific method
As a social science, Economics deals with complex and continuously changing human interactions
It is hard to examine a relationship between two variables and always come to the same conclusion (as can be done in Science or Maths)
There are a variety of tools used in economic analysis to help ensure that positive (factual) statements can be made with a degree of reliability
1. The use of logic
When analysing markets, a range of assumptions are made about the rationality of economic agents involved in the transactions
In classical economic theory, the word 'rational' means that economic agents are able to consider the outcome of their choices and recognise the net benefits of each one
Rational agents will select the choice which presents the highest benefits
Consumers are assumed to act rationally. They do this by maximising their utility
Producers are assumed to act rationally. They do this by selling goods/services in a way that maximises their profits
Workers are assumed to act rationally. They do this by balancing welfare at work with consideration of both pay and benefits
Governments are assumed to act rationally. They do this by placing the interests of the people they serve first in order to maximise their welfare
2. The use of hypotheses, models and theories
The social sciences use a variation of the scientific method of research, which is called the social scientific method
There is an inability to make scientific experiments, the results of which can be proven time and time again
This is due to the complexity of human nature and the significant number of social interactions that are taking place in any economy at any given point in time
The steps in the social scientific method are similar to the scientific method but there is a key difference
Empirical research is collected through observations, surveys, opinion polls etc.
The results of the same hypothesis can vary significantly when conducted by different researchers at different time periods and between different places and cultures
Refutation is the act of a statement or theory being proved to be wrong by the empirical evidence
Refutation helps to determine if an economic statement is positive
Economic models are developed by economists once a hypothesis has been repeatedly proven or rejected in different circumstances
A model is a simplified version of reality
All models make a range of assumptions. These are often generalisations about behaviour, choices and likely outcomes
These assumptions are necessary so as to account for complex human behaviour and constantly changing variables
When evaluating different models, the underlying assumptions should always be considered
3. The ceteris paribus assumption
Due to the large number of variables that can influence any particular economic interaction in society, economists create models using the principle of ceteris paribus
Translated from Latin, ceteris paribus means 'all other variables remain constant'
It allows economists to simplify and explain causes and effects, even if the explanation is somewhat limited by the assumptions
E.g. There are many factors that affect the level of unemployment in an economy (interest rates, consumer confidence, firms' investment, government policies, etc.). Using ceteris paribus, economists can simplify the economic model to analyse just two variables (e.g. unemployment and interest rates)
Positive and normative statements
Positive economics is concerned with objective statements of how a market or an economy works
These positive economic statements are based on empirical evidence and tend to be statements of fact
They can be proven to be true or false
These are examples of positive economic statements
The UK unemployment rate has fallen from 4% to 3.7% in the past three months
Increasing the minimum wage last year in the UK resulted in improvements to wage inequality
Prices in the UK have risen dramatically, partly due to the 20% increase in the price of oil
Normative economics focuses on value judgements. These judgements are built around opinions and beliefs as to what the best economic policies or solutions may be
These judgements are called normative economic statements
Normative economic statements are what separate political parties and the different economic agendas they put forward
These are examples of normative economic statements
Every economy should aim to provide free healthcare for its citizens
Corporation taxes in an economy should be higher than personal income taxes
The best way to deal with a rise in crime is to employ more police
Examiner Tips and Tricks
Examiners will often assess your understanding of positive and normative economic statements. They do this by asking you to identify statements from the text
Normative statements often have the word 'should' in them (but not always). Value judgement must be used in definitions, not opinions
Positive statements usually include data that is hard to challenge. Any use of concrete data points towards the statement being a positive statement
The role of value judgements
Value judgements influence individuals' choices in the economic decisions they make
These decisions can be related to any part of their lives, from what they eat, to where they work, to how they maintain their health
For example, deciding not to eat meat is often a value judgement based around unethical methods of food production
By providing statistics on the harmful impact that meat production has on the environment, environmental campaigners are attempting to demonstrate that this is no longer a normative issue
Another example is the way that many individuals choose to smoke nicotine-based products
The value judgement they make is that the benefits they get from smoking outweigh any risk of cancer.
Value judgements influence governments' choices with regards to the economic policies they choose to adopt and spend money on
The USA spends more money on imprisoning drug users than rehabilitating them
In the UK, the Government has recently increased its spending on rehabilitation
To say the UK approach is better would be a normative statement
To say that the UK government spends more per head on rehabilitation would be a positive statement
The importance of time periods
Economies are constantly changing. Change affects daily life, work, and the way resources are used in production.
Economists use time periods to analyse how change influences economic activity over time
Different time periods are useful when considering the factors of production – the resources used to produce goods and services (land, labour, capital, and enterprise)
Short run
In the short run, a firm can only change some of its inputs
Typically, labour is variable, while other factors such as land and capital remain fixed
Example: Hiring more workers can increase output, but the size of the factory or machinery cannot change
Long run
In the long run, all factors of production can be adjusted
Firms can expand capital, improve technology, or build new factories to increase efficiency and output
This allows firms to plan more effectively to meet their objectives
Very long run
In the very long run, all factors of production and other key inputs can change
Key inputs include technology, government policies, and social factors
Firms can fully adapt to changes in the economic and social environment
Examiner Tips and Tricks
You must avoid using time periods such as weeks, months or years
There is no fixed timescale for the short, long, or very long run
The distinction depends on which factors of production can be varied, not on a set number of months or years
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