Question

Which of these statements deals with optimization, which deals with equilibrium, and which deals with empiricism? Explain.

1. As the text explains, it can sometimes be very difficult to sort out the direction of causality.

1. Why might you think more police officers would lead to lower crime rates? Why might you think that higher crime rates would lead to more police officers?
2. In 2012, the New England Journal of Medicinepublished research that showed a strong correlation between the consumption of chocolate in a country and the number of Nobel Prize winners in that country. Do you think countries that want to encourage their citizens to win Nobel Prizes should increase their consumption of chocolate?

Answer 1

A. In this statement, the person is trying to build up a causation. Causation means how one situation can lead to other or bring change in other situation. Here the person is trying to see if more police officers lead to lower crimes or jogher crimes lead to more police officers. What is the cause and effect relationship in this question. When there is higher crimes rate, more police officers are assigned. So higher crimes is leading to more police officers. And when there are more police officers, it leads to lower crimes. Thus, more police officers are causing lower crimes.

So, this statement is an example of causation and since causation is tested using data, it becomes a part of empiricism or evidence based analysis.

(Optimization is when a person tries to make best decision given the information he/she has. Equilibrium is the situation in which all agents/people are optimally choosing their actions and hence, no one has any incentive to change his/her actions. Bothe these principles- optimization and equilibrium are not relevant in this statement).

B. Empiricism means evidence based analysis. When economists collect data to analyse how things happen in real life or how factors cause each other or how theories are applied in real life, it becomes a part of empiricism.

Here, the researcher has drawn up some conclusion based on analysis of data and hence, the is a part of empiricism.