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ABSTRACTION METHODS: Abstraction is the process of simplifying the complexities of the real world by ignoring (hopefully) unimportant details, especially (for our purposes) while doing economic analysis. Three common methods of actual, real world abstraction used in economic theories are words, graphs, and equations. Words can be misunderstood. Graphs are a little more precise. And equations tend to be the most precise of the three.
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                           LAW: A generally accepted, verified, proven, fundamental scientific relation. A law is a scientifically certified, thoroughly verified, cause-and-effect relation about the workings of the world. It has been tested and retested through the scientific method. The law of demand, law of increasing opportunity cost, and law of diminishing marginal utility are three fundamental (and extremely important) economic laws of nature. Laws of nature form the structural foundation of the theories used in economic analysis. As a house is constructed from concrete, lumber, and nails, a theory is constructed from scientific laws. A fundamental law of nature must capture a cause-and-effect relation about the workings of the real world. One example of a fundamental law is something like: If demand price rises, quantity demanded falls. The scientific method is the process of building theories by identifying and verifying these fundamental laws of nature. Verified HypothesisEvery scientific law begins life as a hypothesis, as a reasonable cause-and-effect statement about the world. A hypothesis becomes a scientific law only after it has been systematically and extensively verified with real world data. Professor Grumpinkston, for example, might hypothesize that seating position in a classroom affects the amount of learning and subsequently the grades earned by students. But such a hypothesis is little more than speculation until it is verified with actual observations--over and over again.A scientific law, as such, captures a fundamental piece of the machinery that makes up the complex world. It is the gear, the coiled spring, the lever, the switch, that when assembled with other components make the world work. While the ultimate goal of the scientific method is to understand the entire complexity of the world, this task is accomplished one scientific law at a time. Ceteris ParibusA scientific law is generally stated in the form of "If A, then B" or alternatively that "A causes B." For example the law of demand can be stated as:If demand price increases, then quantity demanded decreases. Or:A higher demand price causes a smaller quantity demanded. Whichever form is used, a scientific law isolates the relation between two events, A and B. To isolate the relation it is critical to control other possible influences using the ceteris paribus assumption. Ceteris paribus means other factors are held constant. For the law of demand, other factors such as buyers' income, the prices of other goods, and buyers' preferences are held unchanged.Law or Principle?The terms law and principle are generally used interchangeably in the study of economics. Some scientific purists, however, are inclined to make a distinction between the two. - The term law would be reserved only for a cause-and-effect relation that has been so extensively verified that there is virtually no doubt whatsoever that it accurately describes the workings of the world. While no scientific relation can be absolutely verified, one that comes as close to absolute proof as human possible would be a law.
- The term principle would then be used for a cause-and-effect relation that generally seems to be true, based on current evidence, but a modest amount of doubt remains. Not a lot of doubt, just a little. This relation has gone well beyond the hypothesis stage. It is probably true. It most likely captures a fundamental aspect of the world. But it has not been verified under all conceivable circumstances.
The law of gravity is a relation that certainly deserves the law designation. In economics, the law of demand comes a close as anything to this lofty law status. Other economic laws, such as the law of supply, might be better described as a principle. Most likely correct, but some doubt remains.
Recommended Citation:LAW, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2022. [Accessed: May 24, 2022].
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Approximately three-fourths of the U.S. paper currency in circular contains traces of cocaine.
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"Time is the scarcest resource, and unless it is managed nothing else can be managed." -- Peter F. Drucker
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L/C
Letter of Credit
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