Economics is a science resting on

the postulate (or axiom) of

selfishness to explain and predict
human behavior.
Economics is regarded as a
science because it uses the same
methodology used in other
sciences.
•Methodology refers to the set of methods
used in the study of something.
Axioms / Basic postulates

• An axiom is a common believe

(assumption) that is accepted as a starting
point of a discipline.
• All empirical sciences, including
Economics, share an axiom that events do
not happen accidentally, but follow some
universal rules or patterns.
Axiom (or postulate) of selfishness

• is also known as ‘the postulate / axiom of

constrained maximization”
• we assume that people always maximize
their self-interest under constraints
• The exact entity (things to be maximized)
has to be specified. The entity can be
wealth, income, utility, etc.
Economics aims to explain and
predict human behaviors / choices
• Predictions and forecasts are not the
same.
• Predictions must be made in the form of
“If A happens, then B will follow.”
[e.g. “If a per-unit tax is imposed on a
good, the price of the good will increase
(and the quantity transacted will fall).”]
• Forecasts may be derived from
established trend, from a crystal ball, from
the “sixth sense”, etc.
Attributes of a Useful Theory

• Must be able to derive refutable

implications
• A useful theory is refutable (i.e. must have
refutable implication) by evidence but not
yet be refuted.
Must be able to derive refutable
implications
• To be testable, both the antecedent and
consequent need to be observable.
• “If A happens, then B will follow.”

antecedent consequent

[e.g. “If a per-unit tax is imposed on a good,

the price of the good will increase (and the
quantity transacted will fall).”]
A theory could never be proved

• If implications of the theory are supported

by evidence, the theory is said to be
confirmed
• If implications of the theory are not
supported by evidence, the theory is
said to be refuted
Tautology

• A tautology is a statement that is always

true (or it cannot be conceivably false).
The following statements are
tautologies:
• 1) A definitional identity
• (e.g. If a good is a free good, its quantity
available must be sufficient to satisfy all
our wants.)
• 2) The only logical implication
• (e.g. If a good is a free good, its price
must be zero. )
• 3)  Exhaust all the possibilities
• (e.g.  If the wage rate increases, the
working hours may increase, decrease or
remained unchanged. )
Other examples of Tautologies

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Since tautologies are always true, they do
not contain refutable implications. They
predict nothing about the world and they
are not a theory at all. However, a useful
theory may start with some tautological
statements.
Must be logically consistent

• Some Logical Fallacies :

• Fallacy of confirming the consequent
• If A implies B, B does not imply A.
• If one argues that “If A implies B, B implies
A”, one commits the fallacy of confirming
the consequent.
Some Logical Fallacies :

• Fallacy of denying the antecedent

• If A implies B, NOT A does not imply NOT
B.
• If one argues that “If A implies B, NOT A
implies NOT B”, one commits the fallacy
of denying the antecedent.
Must have a certain degree of
generalization power
• A good theory should be one that
embodies a few (test) conditions and
allows us to generalize from one situation
to many others.
• An ad hoc theory is a theory that holds
only under a particular set of conditions
and thus lacks of generalization power.
Assumptions may be unrealistic

• A good theory should be a simplification of

the world
• Simplifying assumptions are usually
unrealistic
• Test conditions have to be realistic
• The usefulness of a theory is judged by its
predictive power
In the scientific aspect of
Economics, it is strictly
positive.
Positive statements are
statements with no ethical
considerations or value judgment.
That is, we are not interested in
whether an act is right or wrong,
good or bad, fair or not. Positive
statements are those statements
about which we can all agree.
Disagreement over positive
statements can be settled by
appealing to facts.
Normative statements involve
ethical considerations or value
judgment. That is, to suggest what
is right, what is wrong, what is
good, what is bad, and so on.
Normative statements cannot be
settled by merely appealing to
facts because people may have
different value judgment.