Economics: A Social Science and Policy Tool

Economics as Social Science

Economists distinguish between two types of statement:
 What is—positive statements
 What ought to be—normative statements
A positive statement can be tested by checking it against facts.
A normative statement cannot be tested.
Unscrambling Cause and Effect
The task of economic science is to discover positive statements that are consistent with
what we observe in the world and that enable us to understand how the economic world
works.
Economists create and test economic models.
An economic model is a description of some aspect of the economic world that includes
only those features that are needed for the purpose at hand.
A model is tested by comparing its predictions with the facts.
But testing an economic model is difficult, so economists also use
 Natural experiments
 Statistical investigations
 Economic experiments
Economics as Policy Tool
Economics is a way of approaching problems in all aspects of our lives. Three broad areas
are
 Personal economic policy
 Business economic policy
 Government economic policy
1. Find stories in today’s newspaper (online) to illustrate the definition of economics with
examples of scarcity, incentives and choices in the Philippines and around the world.
2. Find stories in today’s newspaper (online) that illustrate the distinction between
microeconomics and macroeconomics.
3. Use headlines from the recent news to illustrate the potential for conflict between self-
interest and the social interest.
4. Provide three everyday examples of a trade-off and describe the opportunity cost involved
in each.
5. What is the distinction between a positive statement and a normative statement? Provide
an example (different from those in the chapter) of each type of statement.

Critical Thinking
1. Imagine a homeless man on the street near our university. Use the big questions and
the economic way of thinking to organize a short essay about the economic life of this
man. Make sure you answer the following questions in your essay:
a. Does the homeless man face scarcity?
b. Does the homeless man make choices?
c. Can you interpret his choices as being in his self-interest?
d. Can either his own choices or the choices of others make this man better off?
e. How can the choices of the homeless man and other people make him better off?

Note: Submission of Output (Exercise 1 and 2) must be on or before September 23, 2020.