Economic Thinking Paper

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The final step of the procedure is testing a theory. In order to come to a conclusion, the economists have to gather data and then test the model. If the evidence is consistent with the theory that the model expresses, the model will be valid and accepted. Otherwise, the model will be invalid and rejected. This is the decided step of the whole process so it is compulsory to take careful actions and avoid mistakes.

Even though economists share the economic way of thinking as well as the hazards of this technique, they still disagree in some economic thinking perspectives. These disagreements can be explained by one main cause which is the difference between positive economics and normative economics (Tucker, 2017).

As stated by Tucker (2017), “positive economics is an analysis limited to statements that are verifiable”. It means that statement from positive economics can be supported by specific evidence to be determined to be true or false. A positive statement is often shown as the clause: “ If A, then B”. Two economists in this situation can agree with the fact that event A causes event B but they can oppose to the assumption that event A will happen. For example, both economists agree that if prices rise faster than wages and nominal interest rates 10%, inflation will be raised 8% but their forecast about the growth of inflation can be different. One economist supposes prices will rise faster than wages and nominal interest rates but the other assumes prices will not increase faster than wages and nominal interest rates by 10%. Their predictions and data are different so they will disagree with each other.

In contrast, “normative economics is an analysis based on value judgment” (Tucker, 2017). To be more specific, statements from normative economics are opinions on a subject and cannot be proved to be accurate or not by any data or fact. Each of economists has a different viewpoint on the same problem and those viewpoints are untestable so they will disagree with others. For example, with the same issues such as “Government should regulate monopoly firms to prevent excess price” or “ Higher earners need to pay higher income tax”, there are various ideas around because economists have the different way to see the problems along with different points of view. Therefore, disagreements are unavoidable.

Generally, through this paper, I have emphasized the necessary of having the economic way of thinking by describing the economic concepts of scarcity and choice, analyzing method of problem identification, model development, and theory testing and explaining why economists disagree as well as providing specific examples of thinking way.

References

Gowdy, J. M. (2009). Economics Interactions With Other Disciplines – Volume I. Oxford: Eolss Publishers.

Parkin, M. (2012). Macroeconomics ( 10th ed.). Boston, MA: Pearson Education.

Tucker, I. B. (2017). Economics for today (9th ed.). Manson, OH: Cengage Publishing.