WHAT IS THE METHOD OF STUDYING ECONOMICS? - CULTURE VOCABULARY - 2024

The method of studying economics can be reduced to the realization of four basic principles of the scientific method: observation, induction, deduction and verification. However, since the birth of the discipline, the dichotomy regarding which study method to use has always been present.

Economics is considered a science, and its main objective is to establish principles, theories and analysis models that allow explaining the economic phenomena that arise both in the domestic and private sphere, as well as in the general and global sphere, studying the dynamics of international financial markets.

The discipline emerged in 1776 with the publication of Adam Smith's famous work The Wealth of Nations, becoming one of the main social sciences today.

It is commonly defined as «the study of the way in which society uses scarce productive resources to obtain different goods and distribute them for their present or future consumption, with the objective of analyzing human behavior regarding the production, exchange and use of goods and services ».

Economics studies the way in which the prices of goods and productive factors are set, as well as the behavior of financial markets at a local and global level, the participation of the State and governments in the market and international trade.

The objective of this science is to analyze all kinds of phenomena from three aspects: descriptive economics, economic theory and applied economics.

You may be interested What Problems Does the Economy Address?

Study Approaches to Economic Theory

The economy can be studied from two main theoretical approaches:

Microeconomics

It consists of a series of theoretical hypotheses that seek to explain how individual markets work, making use of various theories: market theory, demand and consumer theory, supply theory, the firm and production, and theory on the structures of the markets.

This approach is usually applied to the study of the labor or urban economy, as well as when it is desired to analyze the economic regulation carried out by markets, domestic economies or the State.

Macroeconomy

It refers to the set of theoretical constructions that aim to explain how national and global economies work, making use of various theoretical approaches such as: the theory of cycles, the theory of public finance, the theory of money and credit and the theory of international economics.

This approach has more applications related to international economics, after focusing on the study of public finances, public administration and the economy of different countries around the world.

Main methods of studying economics

Inductive method

Also called empirical, it was one of the first methods proposed by Adam Smith to study economics.

This method consists of establishing general propositions, theories or analyzes obtained by observing and experimenting with isolated particular cases. The goal is to study the specifics to reach a general conclusion.

First of all, a stage of observation and recording of the different economic events that are being studied must be carried out. Afterwards, analyze the observed, establishing clear definitions of the observed concepts. Finally formulate scientific propositions and general universal statements.

An example of this method can be specified through the law of supply and demand, where the fact that the prices of different particular products have decreased is due to a generality, namely the existence of greater supply.

This method starts from the idea that to arrive at the laws that govern the economy, it is necessary to start from the study of particular cases.

Hypothetical deductive method

Welcomed from the writings of David Ricardo, it focuses on establishing propositions, theories and analysis starting from a general principle, namely a hypothesis, with the aim of analyzing and explaining different particular cases.

In the first place, the hypothesis to be used must be raised, then the economic phenomena must be analyzed based on said hypothesis and later, general laws should be enunciated.

The deductive method is opposite to the inductive one, since it seeks to study a general proposition to explain the particular. In the same way, the law of supply and demand can be taken as an example.

It can be said that the existence of a large supply of products will cause a decrease in their demand, so lowering prices is a reasonable action to take.

You may be interested Inductive and Deductive Method: Characteristics and Differences.

Other study methods used in economics

Analytical-synthetic method

By using the analytical method, an in-depth analysis of the various variables that make up the economic phenomenon is sought.

It aims to take into account the influence and incidence of different aspects, such as social and political, in the case of study. Thus, from the generality, the particularities are studied, decomposing the economic fact.

Whereas when making a synthetic judgment, the objective is to systematically unify the different heterogeneous and isolated elements that make up the case study to understand it in its entirety.

Mathematical and statistical method

Starting from the idea that economics is a science and that it is crucial to verify and verify all the proposed theories, the use of mathematics and statistical methods is essential.

These help to check whether or not the economic phenomenon conforms well to previously developed predictions, theories and hypotheses.

A clear example of this is econometrics, the branch of economics that is dedicated to the empirical testing of theories and models with collected economic data.

Behavioral method

Being a social science, it is vital to take methods from sociology or psychology to study how social behaviors influence local and global economies.

Although the economy must analyze the behavior of the different economic agents that intervene in the markets and what motivates them to be part of the different economic cycles, it is necessary to study disciplines that help to understand human behavior.

Economic policy

Economic policy refers to the various strategies that governments and the state put into practice to conduct the economy of a country.

Hence, the economy must in turn study and know the fiscal and commercial policies that governments put into practice, with the aim of analyzing the economic fact or phenomenon in its entirety.

References

1. American Economic Association. What is economics? Retrieved on July 29, 2017 from aeaweb.org.
2. Economy: a first approach. Retrieved on July 28, 2017 from conevyt.org.mx.
3. Economics. Retrieved on July 29, 2017 from investopedia.com.
4. Guru, S. Methods of economic analysis: deductive method and inductive method. Retrieved on July 29, 2017 from yourarticlelibrary.com.
5. Methods of economic analysis. Retrieved on July 29, 2017 from economicsconcepts.com.
6. Methods of economic analysis. Retrieved on July 29, 2017 from accountlearning.com.