Fundamentals of Economics. Доловова Н.Н - 45 стр.

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essentially the same thing: generalizations, or statements of regularity, concerning the
economic behavior of individuals and institutions. The term "economic law" is a bit
misleading because it implies a high degree of exactness, universal application, and
even moral rightness. So, to a lesser degree, does the term “principle”. And some
people incorrectly associate the term "theory" with idle pipe dreams and ivory-tower
hallucinations, divorced from the facts and realities of the world. The term "model"
has much to commend it. A model is a simplified picture of reality, an abstract
generalization of how the relevant data actually behave.
Generalizations. Economic principles are generalizations and, as the term
implies, characterized by somewhat imprecise quantitative statement. Economic facts
are usually diverse; some individuals and institutions act one way and some another
way. Economic principles are therefore frequently stated in terms of averages or
statistical probabilities. For example, when economists say that the average
household earned an income of about $32,000 in 1988, they are generalizing. It is
recognized that some households earned much more and a good many others much
less. Yet this generalization, properly handled and interpreted, can be very
meaningful and useful.
"Other things equal" assumption. Like other scientists, economists make
use of the ceteris paribus or “other things being equal” assumption in constructing
their generalizations. That is, they assume all other variables except those under im-
mediate consideration are held constant. This technique simplifies the reasoning
process by isolating the relationship under consideration.
In the natural sciences controlled experiments usually can be performed where
"all other things" are in fact held constant or virtually so. Thus, scientists can test the
assumed relationship between two variables with great precision. But economics is
not a laboratory science. The economist's process of empirical verification is based
upon "real-world" data generated by the actual operation of the economy. In this
rather bewildering environment "other things" do change. Despite the development of
rather complex statistical techniques designed to hold other things equal, such
controls are less than perfect. As a result, economic principles are less certain and
less precise in application than those of the laboratory sciences.
Macro and micro. There are two essentially different levels of analys is at
which the economist may derive laws concerning economic behavior. The level of
macroeconomics is concerned either with the economy as a whole or with the basic
subdivisions or aggregates—such as the government, household, and business
sectors—which make up the economy. An aggregate is a collection of specific
economic units which are treated as if they were one unit. Thus, we might find it
convenient to lump together the almost eighteen million businesses in our economy
and treat them as if they were one huge unit. In dealing with aggregates,
macroeconomics is concerned with obtaining an overview, or general outline, of the
structure of the economy and the relationships among the major aggregates which
constitute the economy. No attention is given to the specific units which make up the
various aggregates. It is not surprising, then, to find that macroeconomics entails
discussions of such magnitudes as total output, the total level of employment, total
inc ome, total expenditures, the general level of prices, and so forth, in analyzing

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