Economic Methology

• Ceteris paribus


  All other things held equal
• Ceteris paribus is used because nothing is constant in reality, so economists cannot conduct scientific experiments (like natural sciences).
• Economists create models to help them understand the world and make predictions about the future.
• Economists create models and use real-life evidence to make assumptions.
• Positive statements


  Objective statements which can be tested with factual evidence, and consequently accepted or rejected.
• Example of a positive statement

  "Raising the tax on alcohol will lead to a fall in the demand of alcohol and a fall in the profits of pub landlords."
• Normative statements


  Subjective value judgements based on opinions rather than factual evidence.
• Example of a normative statement

  "The free market is the best way to allocate resources."