Principles of Economics/Economic Modeling< Principles of Economics
As a science, economics follows the scientific method. Hypotheses are developed from observations, and are tested to ensure validity (usually in economics this simply involves more observation). For results to be valid, an hypothesis must be capable of predicting an outcome more than once.
Economists are usually involved in theoretical economics and use their observation of facts to interpret them in a meaningful way. They use cause and effect relationships to establish economic theories or principles. Over time, a theory or principle may become accepted as universally true, at which point it becomes a law. A law is generally always considered to be true. A caveat to all of this is that all economic theories, principles, and laws are generalizations or abstractions. They simplify the actual picture, even more so because of ceteris paribus. A law, though almost always true, may prove false under special circumstances. Like other social sciences, economics cannot apply universal rules because humans sometimes act irrationally.
Use of ModelsEdit
Economists use models to portray situations. Hence, there is a focus on understanding how things work, observing patterns, and predicting results of stimuli. Keep in mind that models are theoretical and follow the rules of deductive logic.