Question

1. Answer the following:

1. Define “The Scientific Method”.
2. Describe the specific steps involved in the Scientific Method procedure, and characterize how economists apply these steps in their work.
3. Why do economists and other scientists always make the assumption “ceteris paribus = other things being constant” as they construct (build) their hypotheses (models)?
4. What is a model, why model, and how can you separate a good model from a bad model?
5. Distinguish a positive statement from a normative statement, and give one example of each.

Answer 1

a. Scientific method is an approach to seek knowledge or to address an issue by systematic observation, measurement and experiment, formulation and testing of hypothesis.

b. Steps involved in scientific method are

Step 1 Make Observation

In this step we observe the subjects under study.

Step 2 Formulation of hypothesis

In this step we formulate the hypothesis we want to test for.

Step 3 Design and perform experiment.

In this we design and perform the experiment to collect some facts which will help us to test our formulated hypothesis.

Step 4 Hypothesis Testing

After collection of information we test our hypothesis and accept or modify it as per the information collected.

Step 5 Findings

After testing hypothesis we conclude the study and present our findings.

All the above steps of scientific methods used to study a specific issue. Firstly the economist formulate the problem and observation has been carried out from primary or by review of existing literature. Then we formulate the hypothesis we want to test. The questionnaire design and data collection carried out. By annalising the data we accept the hypothesis or modify it accordingly. At last we conclude our study with the finding.

c. The economist or other scientists makes the assumption ceteris paribus I.e other things remaining constant because when we want to test the hypothesis we want to see specific effect of a factor on indicator for which we have to make this assumption. Example- In demand analysis we want to see how the price of a commodity affect the quantity demand of that commodity. Here we assume others things remain constant how price affect the demand. If we won't do so then we can not see the exact effect of price on quantity demand as demand depends of various factors such as income, test and preferences of the consumer, available substitute etc. So the assumption makes us to better understand the issue or problem.

d. A model is a theoretical construct representing the economic process by set of variables.

Example- In Consumption model we say that consumption depend on personal income and written as

C=a+bY

The above model has theoretical construct which exiled by the variable income.

A good model is always address the theoretical background or based on theory. But a bad model is not based on theory. Sometimes a model which is mathematically correct but not correct thoertically. In this case it is bad model because it will failed to address the problem correctly.

e. Positive Statement -Positive statements that can be tested or rejected by the help of evidence.

Ex- Fall in income will lead to decrease in the demand for private transport. This statement can be tested by help of evidence .

Normative Statement - It is subjective statement of opinion rather than a fact which can not be tested.

Ex- Smoking should be banded in public area. This is a judgemental statement which can not be tested using facts or evidence.