AQA A-Level Economics · Revision notes

4.1.1.1 Economic Methodology

Economics studies how people, firms and governments choose when they cannot have everything they want. What makes it a social science rather than a natural one is its subject matter: people. A chemist can repeat a reaction and expect the same result. An economist studies a subject that changes its mind, learns, and reacts to being studied.

This is the first topic in the specification, and the ideas in it run through everything that follows.

How economists work, and where that differs from the natural sciences

Economists share a good deal of method with the natural sciences. They observe, form hypotheses, build models, and test predictions against evidence. Where economics parts company is in what it can control.

• Experiments are largely unavailable. There is one UK economy. It cannot be rewound to 2008 to try a different policy, and it will not hold still while something is tested.
• Everything moves at once. When interest rates rise, so do a dozen other influences. Isolating the effect of one is a matter of statistical inference, not of controlling a laboratory.
• The subject reacts. If people expect a policy, they change behaviour before it arrives. Atoms do not anticipate the physicist.
• Ethics constrain what could be tried. No one will run an economy into recession to observe the effect on inequality.

Economists work around this with natural experiments (a policy introduced in Scotland but not England), with historical and statistical evidence, and in behavioural economics with genuine controlled studies of how people decide.

Ceteris paribus — all other things being equal — is the device that makes a model workable. It means isolating one variable by holding every other influence still. Real economies never do this, which is why an economic prediction is conditional rather than absolute.

Positive and normative statements

A positive statement is a claim about how the world is. It can be tested against evidence and found true or false.

• Raising the National Minimum Wage would reduce employment among 18 to 20 year olds.
• UK CPI inflation was 3.4% in the year to August.

Watch out: A positive statement does not have to be correct. "Inflation was 40% last year" is still positive: it is wrong, and the fact that it can be shown wrong is what makes it positive. Positive means testable, not correct.

A normative statement is a claim about how the world should be. It rests on a value judgement, and no amount of data settles it, because people with the same evidence can hold different values.

• The minimum wage should be raised.
• Inflation of 3.4% is unacceptably high.

The usual signals are should, ought, must, fair, too high. But a statement packed with accurate figures can still be normative: "with inflation at 3.4% and wages rising 2%, the Bank must cut rates" is a value judgement wearing data.

Value judgements and policy

Economic policy needs both kinds of statement. Evidence indicates what a policy would probably do; values decide whether that outcome is wanted.

Take a sugar tax. Positive economics can estimate how far consumption would fall, who would bear the cost, and what revenue would be raised. None of that settles whether the tax should exist. That turns on how a child's future health is weighed against an adult's freedom to buy what they like, and on whether a tax falling hardest on low-income households is acceptable.

Key idea: This is why economists working from similar evidence still disagree about policy. The disagreement is usually about values, not about the data.

Value judgements also hide inside decisions that look purely technical. Choosing to target inflation rather than unemployment is a judgement about which matters more. Defining poverty as 60% of median income is a judgement about what counts as poor.

Key terms

Common mistakes

• Thinking positive means true. A false but testable claim is still positive.
• Spotting words instead of reading the sentence. A claim full of statistics can still be normative. Ask what the sentence is doing: describing, or recommending?
• Calling a forecast normative. "Growth will slow next year" is a positive claim about the future, testable in time.
• Concluding that economics cannot test anything. It can, through natural experiments, data and behavioural studies. The limitation is control, not evidence.
• Treating unrealistic assumptions as proof a model is useless. A simplified model can still be the best available guide; the useful question is which assumption a conclusion depends on most.

How this has been examined

In the AQA papers indexed on this site, this topic has appeared as:

• 1-mark multiple choice — asked 4 times across 4 series (2017 to 2025)

All of those sit in Paper 3, which is the paper carrying the multiple-choice section.

Where this goes next

This runs directly into 4.1.1.2 The nature and purpose of economic activity, which sets out the three questions every economy answers, and 4.1.1.4 Scarcity, choice and the allocation of resources. The modelling ideas return in 4.1.1.5 Production possibility diagrams, the first formal model in the course, and the rationality assumption introduced here is challenged head-on in 4.1.2.3 Aspects of behavioural economic theory.