Economics uses evidence and models to explain choices under scarcity.
Must know
- Assumptions isolate a relationship.
- Ceteris paribus holds other relevant influences constant.
- Evidence can support or challenge a prediction.
Must know definitions
Social science: the systematic study of human behaviour and social relationships using evidence, models and, where feasible, experiments.
Economic model: a simplified, assumption-based representation of reality used to analyse relationships between variables.
Assumption: a simplifying statement taken as true so one relationship can be isolated and studied.
Ceteris paribus: "other things remaining equal" — holding all variables constant except the two being studied.
Explain and apply
Mechanism in brief: Holding other influences constant lets a model predict one cause-and-effect relationship. Compare that prediction with evidence, then consider omitted influences before attributing the outcome to the proposed cause.
Distinguish: Economic experiments are possible; an assumption is not a proven fact.
Use the extract: Separate the observed outcome from the model's assumptions; identify which other influences were held constant.
Economics as a social science
Economics is a social science: it studies choices and human behaviour through evidence, models and experiments where feasible.
- Economists cannot normally hold every influence on an entire economy constant or rerun the same historical event. They therefore use models, data, natural experiments and, where appropriate, laboratory or field experiments to investigate behaviour.
- Both natural and social sciences test explanations against evidence. Economic predictions are often conditional because behaviour and surrounding circumstances can change.
| Natural science | Economics (social science) | |
|---|---|---|
| Method | Controlled experiments where feasible; observation and modelling | Models, data, observation and experiments where feasible |
| Can test using experiments? | Yes | Yes, where feasible; practical and ethical limits apply |
The development of models in economics
An economic model is a simplified representation of reality, built on assumptions, used to analyse relationships between variables.
- Assumptions strip away real-world complexity so economists can focus on one relationship at a time.
- Being able to question and challenge these assumptions is a useful evaluative skill across every theme in the course.
The use of the ceteris paribus assumption
Ceteris paribus means "other things remaining equal" — every variable other than the two being studied is held constant.
- It lets economists isolate a proposed link: for example, higher borrowing costs can reduce spending and labour demand, holding other influences constant. The outcome still depends on how households and firms respond.
- This makes the model’s prediction conditional on the other relevant influences remaining unchanged.
ceteris paribus does not mean "nothing else exists" — it means other factors are held constant for the analysis, not that they have no effect.
A simplified model is useful when its assumptions capture the important influences in the case. If expectations or institutions differ materially, explain how the prediction changes before applying it.
Rapid recap
Models isolate a relationship using assumptions. Evidence can support or challenge a prediction; it cannot make an unrealistic assumption true.
Diagram cue: use an assumption → prediction → evidence sequence.
Related chapters: Unit 1 chapter 2 (p. 6) · Unit 1 chapter 3 (p. 8)