Economic Methods and Their Limitations
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Economic Methods and Their Limitations

Economics uses Scientific method in gathering data, analyzing observations and interviews.

Economics, being a science, is a systematic body of knowledge. It uses scientific methods in gathering data, analyzing the data, and making conclusions. Data are obtained through observations and interviews. This is the empirical method which also relies on practical experience. Data are properly organized for analysis. This requires a careful study of the cause-and-effect relationships of the various data. Out of the economic analysis, economic principles and theories are formulated or derived. Economics principles are generalizations. This means they do not apply to all people.

They tend to be true to a large number of people under certain assumptions. For example, economists qualify the validity of an economic principle by using the assumption of "ceteris paribus" which means "other things being equal or constant." Here is an illustration: one fundamental principle of economics is the law of demand. It states that individuals tend to purchase more quantity of goods when price decreases, and when price rises, lesser number of goods are bought. This principle is true if other things are constant, like income. If the income of the individual has increased by 100 percent and the price of the product has only increased by 20 or even 50 percent, it is no longer true that his quantity demanded for a certain product decreases. The reason is that his income has greatly increased which has even improved his purchasing power.

Economic principles or theories are useful because they explain certain economic behaviors or conditions. These are helpful in solving economic problems or serve as guides in economic planning and formulating economic programs. Theories or principles of economics are represented by models in the form of verbal statements, graphs, numerical tables, or mathematical equations. An economic principle or theory which is put in action becomes an economic policy or applied economics

Limitations of Economic Methods

It is true that economics uses scientific methods in gathering data, formulating theories or principles, and in making conclusions. However, there are limitations such as the biases and values of those who get the facts, who make the analysis, and who make the conclusion. Biases and values (what is desirable or undesirable) are naturally formed by the political, social, cultural and economic background of individuals. For instance, a rich man is not in favor of communism. A capitalist may likely have a different idea of income distribution from that of a factory worker.

In addition, the data of economics can not be examined objectively. Economics deals with the study of the behaviors of individuals which are not the same because of their different backgrounds. At any rate, there are economic conclusions which can be quantified. But the rest are just generalizations whose accuracies depend on certain conditions or assumptions.

It is different in the other sciences like physical or natural sciences such as botany, chemistry, astronomy, or geology. Their materials for investigation and analysis can be placed under a microscope or can be seen through a telescope. Obviously, plants, stars or rocks have no biases or values. Conclusions are objective and quantifiable. For this reason, such sciences are said to be exact sciences.

However, the shortcomings of economics can be minimized. We only need competent economic researchers who have the integrity of a true scientist. Assumptions should be close to realities. Economic terms should be clearly defined. Without these, people say it is only good in theory but not in practice. That is why many people consider economics a difficult subject. 

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