Methods of Economics
Economics, being a science, is a systematic body of knowledge. It uses scientific methods in gathering data, analyzing the data, and making conclusions. Data are obtained through observations and interviews. This is the empirical method which also relies on practical experience. Data are properly organized for analysis. This requires a careful study of the cause-and-effect relationships of the various data. Out of this economic analysis, economic principles and theories are formulated or derived. Economic principles are generalizations. This means they do not apply to all people. They tend to be true to a large number of people under certain assumptions. For example, economists qualify the validity of an economic principle by using the assumption of ceteris paribus which means "other things being equal or constant." Here is an illustration: one fundamental principle of economics is the law of demand. It states that individuals tend to purchase more quantity of goods when price decreases, and when price rises, lesser number of goods are bought. This principle is true if other things are constant, like income. If the income of the individual has increased by 100 percent and the price of the product has only increased by 20 or even 50 percent, it is no longer true that his quantity demanded for a certain product decreases. The reason is that his income has greatly increased which has even improved his purchasing power.
Economic principles or theories are useful because they explain certain economic, behaviors or conditions. These are helpful in solving economic problems; likewise they serve as guides in economic planning and formulating economic programs. Theories or principles of economics are represented by models in the form of verbal statements, graphs, numerical tables, or mathematical equations. An economic principle or theory which is put in action becomes an economic policy or applied economics.
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