Lesson 3: Methods and Approaches of Studying Economics
Lesson Objective
Dear learner,
At the end of this lesson, you will be able to:
- Explain the methods of studying economics; and
- Make a distinction between positive and normative economics.
Brainstorming Question
Is economics a positive science or a normative science, or both? Give your justification.
Key Terms and Concepts
- Deductive Method
- Inductive Method
- Positive Economics
- Normative Economics
- objective of economics,
The deductive method, also known as the analytical or a priori method, is a key approach in economics used to derive conclusions from general principles or theories through logical reasoning.
The inductive method, also known as the empirical method, involves deriving general principles or theories from specific observations and empirical data.
Positive economics is concerned with the analysis of facts and attempts to describe the world as it is
Normative economics is concerned with questions such as, “what the economy ought to be?” Or what the economy should be? It evaluates the desirability of alternative outcomes based on one’s value judgments about what is good and what is bad.
The fundamental objective of economics, like any science, is the establishment of valid generalisations about certain aspects of human behaviour. Those generalisations are known as theories.
Dear student,
In the previous lesson, we learned about the branches of economics, and I hope you gained good insight into the branches of economics. In this lesson, you will learn about the approaches and methods of economics, which is also a very important topic.
Please read the following notes carefully and be prepared to answer the quiz questions.
Student, economics is both a positive and normative science. As a positive science, economics focuses on describing, explaining, and predicting economic phenomena without making value judgments. It deals with “what is” and “what will be” based on empirical data and objective analysis. For instance, positive economics studies how changes in interest rates affect consumer spending. Conversely, as a normative science, economics involves value judgments about what ought to be. It deals with “what should be” and includes opinions on economic policies and their desirability. Normative economics evaluates economic outcomes based on subjective criteria and ethical considerations. For example, normative economics might assess whether raising the minimum wage is a good policy based on its perceived impact on social welfare and equity.
Methods of Studying Economics
The fundamental objective of economics, like any science, is to establish valid generalizations about certain aspects of human behavior. These generalizations are known as theories, which provide the basis for economic analysis using logical reasoning.
There are two primary methods of logical reasoning in economics: the deductive method and the inductive method.
The deductive method proceeds from the general to the particular. It involves reasoning from certain principles or premises to the analysis of specific facts. The conclusions drawn are then verified against observed facts. For example, the deductive reasoning that if all men are mortal, and Abebe is a man, then Abebe is mortal.
In contrast, the inductive method is a process of reasoning from the particular to the general, or from the individual to the broader principles. Economists using the inductive method approach problems from a practical angle, collecting comprehensive data about prevailing economic conditions and then attempting to arrive at hypotheses based on these observations. For instance, observing that grain prices decrease during harvest season and associating this with an increase in supply.
Approaches of Studying Economics: Positive vs. Normative
Economics can be analyzed in two main ways:
Positive Economics
Positive economics is concerned with understanding and explaining what is, without making value judgments. It deals with knowledge and facts, and tries to answer questions such as “what is” or “what was” or “what will be”. Positive statements can be verified or disproved based on empirical evidence.
For example, the statement “The current inflation rate in Ethiopia is 12 percent” is a positive statement, as it describes a factual economic condition.
Normative Economics
- Concerned with “what ought to be” or “what should be,” “what must be” done about the economy.
- Contains a value judgment that cannot be verified by investigation or research.
- Involves value judgments.
For example, the statement “The government should introduce school feeding programs in all schools” is a normative statement, as it expresses a value judgment about what the government should do.