Economics and science

The methodology employed by economists has a lot in common with that employed by natural scientists. Both attempts to construct theories or models which are then used to explain and predict. An astronomer, for example, construct models of planetary movements to explain why planets are in the position they are and to predict their position in the future. In order to explain and predict, the economist constructs models of the economy or parts of the economy. These models show simplified relationships between various economic phenomena. For example, a model of a market shows the relationships between demand, supply and price. Although most models can be described verbally, they can normally be represented more precisely in graphical or mathematical form. Models: these explain by showing how things are caused: what are the causes of inflation, why do some workers in some industry earn more than others and so on. Models are sometimes used to make simple forecasts: for example, inflation will be below 5 per cent next year. Usually, however, predictions are of the ‘ if…then..’ variety: for example, if demand for good x rises, its prices will rise. This process of drawing conclusions from models is known as deductions. When making such deductions it has to be assumed that nothing else that can influence the outcome has changed in the meantime. For example, if demand for good x rises, its price will rise assuming the cost of producing good x has not fallen. This is known as the ceteris paribus assumption. Ceteris paribus is latin for’ others things being equal’