METHODOLOGY OF POSITIVE ECONOMICS
1. Diff. posi. and normative, related by normative's empirical
2. Goal is to provide system of generalizations capable
3. Test is prediction
4. Cost effectiveness
5. Realism and assumptions not good judgment test
6. Theory v=gt but no because ball dropped from 30,000
8 [sic]. Simplicity usually means easier duplication and
9. Since neg. statements easier to make assumptions good
to facilitate indirect test, specifying conditions theory expected to be
valid, economical because often more compact yet still comprehensive e.g.,
leaves seek to max. sunlight (ass.) vs. rules
10. Each occurrence has some features peculiarly its own
and not covered by explicit rules. So crucial ass. are those relevant to
judging or applying the model. Help decide which tests valid.
11. Ass. of hyp. indirect test insofar as ass. can themselves
be regarded as implications of hyp. Indirect because ass. generally give
rise to class of phenomena diff then class hyp. was designed for. ALso
ass. kinship with other tested hyp. so relevant validity e.g. hyp. disc.
closely related to degree of monopoly so if competitive disc. only to extent
effects output due to harmony. This assumes single-minded pursuit of pecuniary
profit which is an ass. used in several hyp. So economist might think reasonable
here to. Sociologist wouldn't.
12. Marshall ortho unrealistic and dismal science. Friedman
says criticism of this type is largely beside the point unless offers hyp.
generating better prediction. Usually not so accompanied but just based
on observation of discrepancies between ass. and real world. But no model
can be realistic totally or it would be the whole. Theory is the way we
13. Marshall some say assumed perfect competition. Clearly
this does not exist. Friedman feels Marshall did not ass. But posited one
extreme. No observed demand curve will ever be horizontal so est. elasticity
will always be finite so relevant? Is it sufficiently large to call infinite?
No one can say. As marshall states ? must be settled by convenience of
particular discussion. So Marshall's engine (model) works best for firms
that can be used as if perfect comp. Need more general to cover both cases
91) where differentiation of product or fewness of number make essential
diff. and (2) where it does not. This is Chamberlin and Robinson's imp.
or monop. theory - unfortunately has not attributes to make a useful gen.
theory, can't handle groups of firms (industries) because insists differentiation
of product is essential definition of close substitute or substantial gap
evade issue and make it fuzzy.
14. Yes because test old hyp. and build new. Formation
of hyp. is creative act, its essence is the vision of something new in
familiar material. Process is psychological.
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