1.1.1 Economics as a social science

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    Microeconomics examines decisions made by economic agent – separated into two broad areas: markets and market failure

    a) Thinking like an economist: the process of developing models in economics, including the need to make assumptions
    Social science (broadest sense) – study of society and the manner in which people behave and influence the world around us – seeks to explain human behaviour through models
    Economic model seeks to explain how people will generally behave in certain circumstances
    These models are used to predict patterns of future behaviour by considering how one variable (government policy) can influence another variable (smoking habits)
    b) The use of the ceteris paribus assumption in building models
    Ceteris Paribus – All other things being equal
    c) The inability in economics to make scientific experiments
    Important character in economics is behaving rationally (taking account of all available information and making a decision accordingly) and irrationally (opposite) – this debate is explored by behavioural economics – uses both economics and psychology to try and explain human actions
    Most sciences allow for laboratory testing, social sciences are different as economic agents like households and firms make decisions against backdrop of constant changes in mood, perception and finances
    Economists unable to emulate laboratory conditions so they make ceteris paribus assumption – allows them to generalise economic predictions (can weaken it too as everything else isn’t actually equal)

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