the economic problem

• What is the distinction between natural science and social science?

  Natural science observes aspects of the universe, while social science observes human behavior.
• What is the focus of social science?

  Social science is focused on the study of human behavior.
• What does economics study?

  Economics studies human behavior and the choices that humans make.
• Why is economics considered a science?


  Economics is considered a science because it tests observations and theories.
• What is the basic process of how an economist develops a theory?

  Economists observe patterns, form a hypothesis, make predictions, and collect evidence.
• What is demand theory?


  Demand theory is a theory that explains consumer behavior regarding price changes.
• What pattern do economists generally observe regarding prices and consumer spending?

  When prices are lower, consumers tend to spend more.
• What hypothesis might an economist form based on the observation that lower prices lead to increased spending?

  An economist might hypothesize that when prices are low, consumers will spend more money.
• What are predictions in the context of economic theories?

  Predictions are precise expectations that can be tested against evidence.
• What happens after economists collect evidence regarding their predictions?


  The evidence either supports or falsifies the predictions made.
• What occurs if the evidence collected does not support the predictions?

  If the evidence does not support the predictions, the hypothesis is rejected and the process starts again.
• What happens if the evidence supports the predictions made by economists?

  If the evidence supports the predictions, the hypothesis can become a theory.
• What is the law of demand?

  The law of demand states that when prices rise, consumers spend less, and when prices fall, consumers spend more.
• What is the purpose of further testing a theory in economics?


  The purpose is to ensure there are no exceptions or weaknesses in the theory.
• What are sub-theories in economics?

  Sub-theories are exceptions to the main theory that arise from further testing.
• What is the gifting good theory?

  The gifting good theory suggests that when prices rise, consumers may buy more of certain goods by reallocating their income.
• What is the beveling good theory?

  The beveling good theory suggests that demand for luxurious goods may increase when prices are high due to status considerations.
• What is the significance of positive statements in economics?

  Positive statements can be tested against evidence and facts.
• What are normative statements in economics?


  Normative statements are opinionated statements that cannot be tested.
• Why do economists prefer positive statements over normative statements?

  Economists prefer positive statements because they can be tested against facts and evidence.
• What is the process of developing a theory in economics?

  1. Observe patterns of consumer behavior.
  2. Form a hypothesis based on observations.
  3. Make predictions that can be tested.
  4. Collect evidence to support or falsify predictions.
  5. If supported, the hypothesis becomes a theory.
  6. Further test the theory for exceptions or weaknesses.
• What are the key differences between positive and normative statements in economics?

  • Positive statements:
  • Can be tested against evidence.
  • Based on facts.

  
  

  • Normative statements:
  • Cannot be tested.
  • Based on opinions and value judgments.