Economic Thinking Paper

Ngo Quoc Khanh

City University of Seattle

BSM 407 – Business Economics

Prof. Daniel Hammes

January 31, 2021

 Economic Way of Thinking

Nothing is eternal in our universe. All faces the shortage problem, both personally and

collectively. What's scarcity, however? "Scarcity is the condition in which human desire is ever

greater than time, goods, resources and supply available," Tucker (2014) of the book Economics

for Today says. The need of everyone cannot be met because there is not enough resource to

manufacture all the goods and services required to satisfy all human requirements. That is why

we must distribute their finite capital for sufficient development and its analysis is used as the

concept of economics. In the interim, economic thinking "examines how people make choices

under circumstances of shortage and in production, consumption, distribution systems, as well as

the effects on market outcomes of government policy and actions" (Australia National

University, n,d). In the option of the system for people, businesses and politicians the economic

way of thought is key. This paper evaluates the manner in which economists disagree with this

prescriptive way of thought with the function of problem system recognition, model growth, and

hypothesis testing.

Problem Identification

"Economists usually use a step-by-step method for problem solving, by identifying a problem,

creating a model, collecting data and testing if the data conforms with the theory" (Tucker,

2014). To answer the question, Encyclopedia's article 'Identification Problem' (n.d) defines: 'The

specific board is an inferential and conceptual major issue to be overcome before an economic

model is calculated.' The deductive and inductive techniques are two of the most important

methods used by economists to locate the problem. Suman (n.d) pointed out that "the inductive

procedure consists of the collection of facts and conclusions drawn from them, and the test of

conclusions by other facts." However, on the other hand, the deductive process requires
"reasoning from some basic points which are assumed to be true." The distinction between the

constructive and the normative economic approach is often proposed in addition to inductive and

deductive approaches. "Positive economy is an economic stream that focuses on the

identification, measurement and explanation of economic developments, expectations and related

phenomena," Fontinelle (2020) pointed out. Whereas, normative economics "focuses on

ideological, opinion-oriented, prescriptive and value judgments that are directed towards

economic development, investment projects and scenarios to summarize the desirability of

people to various economic developments, circumstances and programs by asking or quoting

what is or should occur."

Model Development

After figuring out what the problem is, it is time for an economist to create a pattern which is to

'understand and forecast the relationship between variables in a simplistic explanation of fact' A

model only highlights certain variables that describe an occurrence (Tucker, 2014). In the case of

positive economics, a study is restricted to claims which can be checked and which deal with

facts and answer "what is" and proof. Accuracy is also not the only criterion under whether an

assertion is positive or not, nor whether or not the statement may be checked. The declaration

may be incorrect and real. In comparison, regulatory economics is used for "what should"

decision. These regulatory comments appear to "speak individually or collectively on a subject

and cannot prove true or false by facts" because of their value appraisal - based charakteristic

(Tucker, 2014). In certain cases, regulatory economies may be referred to as social welfare

economies, which "concern to compare an economic state to another on the basis of value

judgments and suggest certain criteria to improve social welfare" (Suman, n,d). The welfare

economy also tackles regulatory and ethical concerns related to social choice and human values.
 The Theories

"A verbal argument, a numerical table graph or a mathematical equation can be given to an

economic model." The purpose of an economic model is to "project or anticipate the outcome of

different variables changes" (Tucker, 2014). Such "If A, then B, holds others constant" can be

viewed as the fundamental structure of an economic hypothesis. An economic model only serves

if it offers detailed forecasts. When it is evident that the consequence B is induced by A, there is

confidence in the logic of theory. However, A does not trigger B, the hypothesis is dismissed, if

items become incoherent. For example, if the minimum wage for jobs rose by 10% in the United

States, the optimistic economic approach will decrease the unemployment rate by 50%. This is a

"if-then" optimistic forecast that may be accurate or wrong. However, the important thing to

remember here is, as has been said, whether or not the argument is testable. Assume that the

research indicates that the rate of unemployment only falls by 25 percent when the minimum

wage is 10% higher than expected. It can be inferred from this data that the declaration is

erroneous. In comparison to positiv, beliefs and perceptions are not objectively unproven in

regulatory economy and depend on evidence.

The Disagreements of Economist

"Economists may seem to disagree with others partly because disagreement is more interesting

than agreements" " " (Tucker, 2014). It is well known that the contradictions between

constructive and normative economics cause such debates. In most economic textbooks and

materials for learners, constructive economic theory can be included. In our daily lives, though, it

is more likely that policymakers and corporate owners use normative approaches to discuss

economic issues. Furthermore, because of the "out of the box thinking" economists use mostly

utilitarian claims against any economic policy. This is when standardized economists clash with
individuals whose views are focused on facts and percentages. These can be the basis for

required modifications and can affect a specific product. But be mindful that the only reason for

any decision-making cannot be normative economics. The optimistic economy is based on

reality and causes and consequences and can substitute for what is missing in the normative

economy. It is therefore suggested: "A clear understanding of the difference between positive

and normative business could result in better policymaking if policies are based on a balanced

mix of facts and opinions."

Conclusion

To sum up, people are forced to make choices because of the scarcity that requires them to make

choices. There is, thus, an economical way of thought that helps people to choose what they need

to forecast and anticipate any prospects along with optimizing profit and reducing damage. But

as economists often evaluate things differences, disagreement often exists, especially among

those pursuing optimistic and regulatory economics.

 References

.Australian National University. (n,d). The Economic Way of Thinking. Retrieved from:

https://programsandcourses.anu.edu.au/2019/course/POGO8016#:~:text=Economic%20way

%20of%20thinking%20examines,production%2C%20consumption%2C%20and

%20distribution.&text=The%20economic%20way%20of%20thinking%20provides%20a

%20decision%2Dmaking%20framework,%2C%20firms%20and%20policy%2Dmakers

Fonetinelle, A, (2020). Positive vs. Normative Economics: What's the Difference? Retrieved

from: https://www.investopedia.com/ask/answers/12/difference-between-positive-normative-

economics.asp#:~:text=Normative%20economics%20focuses%20on%20the%20value%20of

%20economic%20fairness%2C%20or,is%20based%20on%20value%20judgments.

Suman, S. (n,d). Economics: Methods, Types and Models. Retrieved from:

https://www.economicsdiscussion.net/economics-2/economics-methods-types-and-models/12260

Tucker, I. (2014). Economics For Today (8th ed.). South - Western Cengage Learning