Positive economics describes and explains the world as it is, using logic and evidence.
How economists build knowledge
A hypothesis
A testable idea: if the price of bus tickets rises, fewer people ride the bus.
A model
A simplified picture of how it works, such as a demand curve.
Evidence
Data from the real world: ticket prices and passenger numbers.
Keep or refute
If the data disagree, the idea is rejected or changed.
The points to remember
- A theory is a hypothesis that has survived many tests.
- Evidence can refute an idea, but never prove it for certain.
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Real economies change in many ways at once, so economists hold everything else still.
Ceteris paribus: all other things equal
| Without ceteris paribus | With ceteris paribus |
|---|---|
| Bus fares rise, a new metro opens and petrol gets cheaper: which change cut bus travel? | Only bus fares change; everything else stays the same, so the effect of the fare is clear. |
The points to remember
- Ceteris paribus: change one thing, hold the rest equal.
- Every curve you draw in this course assumes it.
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A Paper 2 definition in this shape could appear, for 2 marks.
A forecast of next year's bread sales assumes ceteris paribus.
Define the term ceteris paribus.
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