Today is Wednesday, August 26, 2009.
ECONOMICS IS THE SCIENCE OF THE ALLOCATION OF SCARCE
RESOURCES FOR THE SATISFACTION OF HUMAN WANTS AND NEEDS.
ECONOMICS AS A SCIENCE
As we mentioned the first day, economics is a science.
A science is “the
intellectual and practical activity encompassing the systematic study of the
structure and behavior of the physical and natural world through observation
We also mentioned that economics is a
science because it is a discipline in the Academy that advances the
knowledge in the discipline by utilizing the
method is “a method of procedure that has characterized natural science
since the 17
century, consisting in systematic observation, measurement,
and experiment, and the formulation, testing, and modification of
is “a proposed explanation made on the
basis of limited evidence as a starting point for further investigation.”
is “a supposition or a system of ideas intended to explain
(You Got It
So, if we put this all together, we get:
are scientists that have, for hundreds of years, observed how individuals,
groups of individuals, societies, firms, (businesses), industries, states,
nations, (and even rats!)
, utilize intelligence and reason to get the things that
they want and need, and are
, when it comes to making economic
For example, economists observe how farmers behave, when they
operate their farms.
They hypothesize what it is that the farmer is trying to
accomplish; what his goals are.
They combine different hypotheses into a
theory of what the farmer is doing, and trying.
They observe which farmers
are doing well, and which are not doing too well, in accomplishing their goals.
They try to figure out if all the farmers have a common goal.
Why are the
Why do we observe different results?
The Economists form
a theory as to how a typical farmer will behave, with respect to the economic
decisions he/she makes, when running the farm, (as well as how the
business will behave
), and how the operator of the
farm will behave in the face of different circumstances.
A fairly recent sub-field of economics, such as Microeconomics and Macroeconomics, is
, where rats are used in lab experiments to demonstrate that the laws and theories of economics
apply to the rats just as they do to humans.
You should note that in the universities that do a lot of
Experimental Economics, they use College Students as often as they use rats.
Microeconomics doesn’t just explain how managers of
It explains how the managers of