ECONOMIC METHODOLOGY: AQA Economics Specification Topic 4.1

Topic 4.1 - Individuals, firms, markets and market failure

Snapshot of the AQA syllabus topic area we’ll be covering in this post.

ECONOMIC METHODOLOGY

AQA students must understand the following content [taken from the syllabus]

• Similarities to and differences in methodology from natural and other sciences.

• The difference between positive and normative statements.

• How value judgements influence economic decision making and policy.

• People’s views concerning the best option are influenced by the positive consequences of different decisions and by moral and political judgements.

HERE’S WHAT YOU NEED TO KNOW

Economics is a social science. It seeks to understand the production, distribution, and consumption of goods and services. Economics analyses human behavior, choices, and interactions within the framework of scarce resources. We will delve into several fundamental aspects of economics, including its nature as a social science, its methodology, the distinction between positive and normative statements, the influence of value judgements on economic decision-making and policy, and the interplay between positive consequences, moral judgments, and political views.

1. Economics is a Social Science: Economics is a social science because it focuses on human behavior in relation to economic activities. Economics examines how individuals, households, businesses, and governments make decisions and allocate resources in the pursuit of their goals (welfare maximisation). By studying patterns and trends in economic behavior, economists seek to develop theories and models that explain and predict economic phenomena.

2. Similarities to and Differences in Methodology: Economics is similar to natural sciences. For example, the use of empirical evidence and quantitative analysis. But it also differs in methodology due to the complexity of human behavior. Economics often deals with unpredictable variables and varied individual preferences, making it challenging to establish universally applicable laws or principles - this is unlike natural sciences. This means economists rely on models and assumptions to simplify real-world situations while recognising their limitations.

3. Positive and Normative Statements: There is a distinction between positive and normative statements. A positive statements is factual and can be tested to be true or false. A positive statement describes how things are or how they function in the economic realm. For example, “an increase in price should result in a decrease in demand for a normal good” is a positive statement, because it can be tested against the law of demand.

   On the other hand, normative statements express value judgments and opinions about how things should be. A normative statement is subjective and cannot be tested against the facts. For example, “the government should invest more money in renewable energy” is a normative statment because it is based on the a set of values that renewable energy is valuable. However, some may disagree with the statment and think that society is better off by investing in non-renewable fossil fuels.

4. Influence of Value Judgements on Economic Decision Making and Policy: Value judgments are signficiant when it comes to making economic policy decisions. Individuals, policymakers, and societies have differing perspectives and beliefs - what is fair, desirable or just? These subjective values shape preferences, priorities, and policy goals. For example, some people may prioritise economic growth and business efficiency, while others prioritise equity, equality and social justice. The interaction between economic analysis and value judgements can lead to different policy choices. This is why we have debates about the best way to allocate resources, address societal issues and run the country.

5. Positive Consequences, Moral Judgments, and Political Views: Positive consequences as well as people's moral and political values have an impact on their opinions of the best economic solutions. The projected results of certain economic decisions or policies, such as increased employment, higher earnings, or improved environmental sustainability, are referred to as positive consequences. Political and moral judgements, which represent individual views on justice, fairness, and the function of government, are also relevant. These evaluations may influence people's preferences and stances on issues, resulting in a variety of viewpoints and discussions in society.

Conclusion: As a social science, economics may shed light on how people behave and make decisions. A thorough framework for examining economic phenomena is provided by an understanding of its methods, the distinction between normative and positive statements, the impact of value judgements, and the interaction between positive results and moral and political assessments. Policymakers and citizens can have informed discussions and arrive at well-rounded decisions that strike a balance between economic efficiency, equity, and societal well-being by taking these variables into account.