Methodology In Economics

Methodology In Economics

Methodology, in economics, is the study of the methods used by economists in their academic work. The work of the economist broadly conforms to two methods the normative and the positive. Normative economics consists of statements on what individual business or public policy ought to be, based on the value-judgments of the individual economist. Positive (or behaviourist) economics is in principle independent of any ethical position or judgment; it deals with what is, not what ought to be. Its task is to provide a system of generalizations that can be used to make objective predictions about the consequences of change in circumstances. In this sense it is a science.

Micro-economics, the study of the economic actions of individuals and well-defined (small) groups of individuals. Prices play a major role in micro-economic theories, the purpose of which is usually to analyse price determination and the allocation of resources to particular uses. Income concepts are not ignored in micro-theory; but individuals earn their incomes by selling factors of production the prices of which are determined in the same way as all other prices.

The theories of individual behaviour and price determination in a competitive economy may be developed in three stages. First, the behaviour of individual consumers and producers is the focal point; each individual is assumed to consider the prices of the goods he buys and sells as 'given', and the quantities of his purchases and sales are the 'variables' determined in these theories. The market for a single commodity is the focal point of the second stage; other things being equal, the price of the commodity, as well as the volume of purchases and sales, is shown to be determined by the independent actions of buyers and sellers. Finally, in the third stage, interrelations between the various markets in the system are taken into account, and an prices are determined simultaneously.

In recent years there has been a tendency to replace microeconomics by macro-economics, which some economists think more helpful. Other economists consider that macro-economics is valid only in so far as it rests on valid micro-economics, because the behaviour of very large groups such as the population of whole countries cannot properly be interpreted unless the motives and reactions of individuals or parts of it are analysed or understood. r

Further readingEconomic - Economics Dictionary

Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this site is therefore not a final statement of economic doctrine.

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