Economics is a social science, Why?

Economics as a social science

Economics is a social science
Economics is a social science

Also answers the following questions:

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What is economics?

Economics is the study of scarce resources and how people, businesses and the government make decisions with the given resources that are provided to them. 

What is scarce resources or scarcity?

Scarcity is the fundamental economic problem. The problem is that there are unlimited wants but limited resources. Due to their being limited resources, we are unable as a society to fulfill every human being's wants.  For instance, let's say you wanted to go to the cinema to watch the new King Kong film which is highly recommended. Well, you also craving for a burger from Hungry cafe but all you have is ten pounds. Now, you're gonna have to choose between watching King Kong or going to Hungry Cafe. This is an example of a decision you are forced to make due to scarce resources. The scarce resource, in this case, is money 'your ten-pound note.' 

Why is economics a social science?

Well, unlike natural/ pure science such as physics, chemistry, and biology, in economics we cannot conduct scientific experiments. Rather we use real-life scenarios to build models upon which assumptions are made. A key assumption that is made in economics is the assumption that events occur with ceteris paribus. It's not as confusing as it sounds. Ceteris paribus is just a Latin phrase that means "all other things being equal." 

So, this assumption is that all other things are being held equal or constant. So nothing else changes. For example; let's say the demand for football increased during the World Cup. Now using the law of demand, we would say that the price of football will also increase ceteris paribus. This means that we are assuming that every other factor in the price of football stays the same even including the supply of football. 

Let us look more deeply at economics as a social science. Publishing his "An inquiry into the nature and causes of the wealth of nations" in 1776 A.D,  Adam Smith, a moral philosopher of the Scottish enlightenment and scientific revolution proposed that a free market economy is capable of achieving an efficient allocation of resources without the need of government intervention.

He wanted to replace the very visible hand of government officials with the invisible hand of the free market that would guide resources to their best use and generate the best living standards possible given unavoidable scarcity. Smith argued that a system in which transactions are voluntary, resources are privately owned and markets are competitive, would be more likely to generate an efficient outcome than would a system controlled by the government. 

Many of Smith's arguments were directed at mercantilists who advocated government policies that limited imports and restricted trade. The purpose of the protectionist policies advocated by mercantilist is known as bullionism. Smith argued that the wealth of a nation could best be judged by the living standards of its citizens, not the amount of gold held by the government which depends on the outputs produced and consumed. 

So, when applying scientific methods to the social science of economics, we must take several steps. First, we need to make observations of the world around us and select an economic question we want to answer. Then we must identify variables we think are important to answer that question we need. 

We must then make a hypothesis about how the variables are related to each other, make an assumption or make assumptions and test the hypothesis to see if its predictions fit with what actually happened in the real world. And then compare the predictions of the hypothesis with the real-world outcomes in order to identify the relationship between two specific variables.

Other variables that might influence the relationship are assumed to not change. The term ceteris paribus roughly translates as 'all other things unchanged.' The ceteris paribus assumption is used to isolate the relationship between two variables by holding other influences on the relationships constant. 

For example; the positive statement quote "quantity demanded falls when the product price rises ceteris paribus" means that, it is assumed that another event that would affect the amount purchased (quantity demanded). Such as, a change in consumer income is not occurring at the same time as the price changes. 

A graph is a model of the relationship between two or more variables. Graphs are frequently used in economics to illustrate and analyze the specific relationships that exist between two variables and how that relationship may change when other influences affecting it change. The independent variable usually denoted in X and plotted on the horizontal axis has a value that can change freely. 

The value of the dependent variable usually denoted as Y and plotted on the vertical axes changes in response to a change in the independent variable and the value of the dependent variable depends on the value of the independent variable. The basic economic analysis focuses on the relationships between two variables and the relationship can be graphed on a Cartesian plane.

A Cartesian plane is divided into four quadrants. Most graphs and economists only use the first quadrant because negative values of many economic variables just don't make any sense in a negative quadrant. In quadrant one, the values of both the independent and dependent variables are positive. However, this does not mean there is necessarily a positive or direct relationship between the two variables. 

A direct or positive relationship exists when a change in the independent variable causes the dependent variable to change in the same direction. This means that an increase in the value of X leads to an increase in the value of Y and vice versa assuming X is the independent variable and Y is the dependent variable. The differing values for the independent variable and corresponding values for the dependent variable can be expressed as a point on a two-dimensional graph. 

Each point has two coordinates; the x coordinate and y coordinate. Direct relationships are graphed as curves that slope upward to the right. The graph of the line between the two points to one and is shown in quadrant one of the Cartesian plane. Here the upward sloping line represents a positive or direct relationship between the variables x and y. 

An inverse or negative relationship exists when a change in the independent variable causes the dependent variable to change in the opposite direction. This means that an increase in the value of x leads to a decrease in the value of Y and vice versa, assuming X is the independent variable and Y is the dependent variable. Inverse relationships are graphed as curves that slope upward to the right. 

Equilibrium between demand and supply

Once the relationship has been identified and tested, a theory can be developed. Economic theories are not necessarily complex, rather a good economic theory explains important relationships. Any economic theories that have been widely accepted and applied take on the status of law. 

For example; the law of demand, the law of supply and the law of diminishing marginal returns. Economic models are designed to simplify reality in an attempt to explain real-world relationships and direct outcomes. 

One important economic model is the supply and demand model which is based on theories about demand-supply and market equilibrium. This model helps to explain how prices are used to direct resources, to specific users in a market economy and to make predictions about how prices and outputs might change when market conditions change. 

The economic model has taken many forms and those used by governments, academics and businesses in the real world tend to be fairly complicated. Mathematical and statistical models that require the use of a computer, a basic economics course, however, uses models that are two-dimensional graphs, tables, and simple management mathematical equations. This concludes the topic of economics as a social science.


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