1.1.1 Economics as a Social Science

Specification Coverage: Edexcel unit 1.1.1 - Economics as a social science. Students must learn the process of developing models in economics, including the need to make assumptions; the role of the ceteris paribus assumption in building models; and the inability in economics to make scientific experiments.

The Nature of Economics as a Social Science

Economics is a social science. It uses scientific methods to study human behaviour and societies, focusing on the production, distribution, and consumption of goods and services. It deals with complex human interactions, which are influenced by countless variables, making it distinct from natural sciences like physics or chemistry.

The Purpose of Economic Models

Due to this complexity, economists use models.

  • A model is a simplified representation of economic reality used to understand, explain, and predict economic behaviour.
  • Models require assumptions (generalisations about behaviour) to make complex situations manageable.

    • Example:The Circular Flow of Income model simplifies the entire economy into a few key agents (households, firms, government) and their interactions.

The usefulness of a model depends on its assumptions. Different economists may make different assumptions, leading to different interpretations of the same data.

The Role of Ceteris Paribus

To isolate the relationship between two key variables, economists use the principle of ceteris paribus.

Ceteris paribus:A Latin phrase meaning ‘all other things being equal’ or ‘all other factors held constant’.

  • Purpose: It allows economists to analyse a causal relationship between two variables without the distortion of other changing factors.
  • Example: The law of demand states that ceteris paribus, as the price of a good falls, the quantity demanded will increase. This holds true only if we assume factors like consumer income, tastes, and the price of substitute goods remain unchanged.
  • Limitation: In the real world, ‘other things’ are rarely constant, which is a key limitation of economic models.

The Inability to Conduct Controlled Experiments

Unlike natural sciences, economics cannot conduct laboratory-controlled experiments.

  • Reason: It is impossible to isolate and control all variables affecting human economic behaviour in a real-world economy.
  • Method: Instead, economists use the social scientific method. This involves:
    1. Developing a hypothesis.
    2. Conducting empirical research (gathering data through observation, surveys, and historical records).
    3. Analysing the data (often using ceteris paribus).
    4. Drawing conclusions.
  • Consequence: Results can vary over time and between different cultures, meaning economic theories are often open to debate and interpretation. Economists build models based on hypotheses that have been repeatedly tested through empirical research.

Exam Preparation

  • You must be able to define and apply the term cetertis paribus to any economic model (e.g., demand, supply).
  • Be prepared to evaluate the use of models, highlighting their simplifications and reliance on assumptions.
  • Understand the core difference between economics (a social science) and the natural sciences, focusing on the inability to run true experiments.