SEAB GCE A-Level Economics

## Economics as a social science Economics studies how people, firms and governments choose to use limited resources to satisfy wants. It is a **social science**: like the natural sciences it builds models, tests them against evidence and revises them, but its subject is human behaviour, and that makes it different in three ways. - People cannot be placed in a laboratory and held constant, so economists rely on observation of real economies, natural experiments and statistical analysis, and results are rarely as clean as those from a chemistry experiment. - People respond to the theories themselves. A forecast that interest rates will rise can change what firms and households do, and so change what happens. - The relationships being studied shift over time, because tastes, technology and institutions change. A relationship that held in Singapore in one decade may be weaker in the next. To get round the first problem, economists use the assumption of **ceteris paribus**, which means "all other things remaining equal". A demand curve, for instance, shows how quantity demanded responds to price when income, tastes and other prices are held constant. The assumption is a way of isolating one cause at a time, and a model built on it is a simplification that has to be checked against what else changes in practice. ### Positive and normative statements A **positive statement** is about what is, was or will be, and can be tested against evidence, whether or not it turns out to be…