Chapter 1:2 – Flashcards

1. The scientific method consists of 2. Theories, principles, and models are "purposeful simplifications."

a. The observation of facts (real data). b. The formulations of explanations of cause and effect relationships (hypotheses) based upon the facts. c. The testing of the hypotheses.

d. The acceptance, rejection, or modification of the hypotheses. e. The continued testing with an eye toward determination of a theory, law, principle, or model.

3. Principles are used to explain and/or predict the behavior of individuals and institutions.

4. Terminology—Principles, laws, theories, and models are all terms that refer to generalizations about economic behavior. They are used synonymously in the text, with custom or convenience governing the choice in each particular case.

Economic principles are expressed as the tendencies of the typical or average consumer, worker, or business firm.

In order to judge the effect one variable has upon another it is necessary to hold other contributing factors constant. Natural scientists can test with much greater precision than can economists. They have the advantage of controlled laboratory experiment. Economists must test their theories using the real world as their laboratory.

Many economic relationships are quantitative, and are demonstrated efficiently with graphs. The "key graphs" are the most important.

1. It includes measures of total output, total employment, total income, aggregate expenditures, and the general price level. 2. It is a general overview examining the forest, not the trees.

1. It is concerned with the individual industry, firm or household and the price of specific products and resources. 2. It is an examination of trees, and not the forest.

1. Positive economics describes the economy as it actually is, avoiding value judgments and attempting to establish scientific statements about economic behavior.

2. Normative economics involves value judgments about what the economy should be like and the desirability of the policy options available. 3. Most disagreements among economists involve normative, valuebased questions.