Scientific Method

To identify the connection between A and B it is essential that only A and B change. If event A is hypothesized to cause event B, then other possible events C, D, and E, which might affect B, cannot be allowed to change, cannot be allowed to influence B.

Consider a basic economic principle, the law of demand. This law states that quantity demanded is inversely related to demand price. Or stated in other terms, an increase in demand price causes a decrease in quantity demanded.

Suppose, for example, that focus is on the demand for hot fudge sundaes, particular the law of demand for hot fudge sundaes. The amount of hot fudge sundaes that buyers are willing and able to purchase, however, can be influenced by factors other than the price of hot fudge sundaes, including income, preferences, or the prices of other goods.

• Demand Price Changes: Suppose that the price of hot fudge sundaes increases from $2 to $3. The law of demand indicates that the quantity demanded of hot fudge sundaes should decrease.


• Quantity Demanded Changes: If the quantity demanded of hot fudge sundaes decreases, then this provides (presumably) confirmation of the law of demand. But what if the quantity demanded increases? Does this refute the law of demand?


• Other Factors: The law of demand cannot be confirmed or refuted if other factors that also influence hot fudge sundae demand also change. Suppose hot fudge sundae buyers have more income, which they are inclined to spend on hot fudge sundaes. Additionally, suppose the price of yogurt cones (a substitute for hot fudge sundaes) increases, prompting potential yogurt cones buyers to purchase hot fudge sundaes instead.

  With these other factors also changing, testing the cause-and-effect connection between demand price and quantity demanded is impossible. It is not possible to say for certain if the change in the quantity demanded of hot fudge sundaes is caused by the higher price of hot fudge sundaes or by the change in buyers' income or by the change in the price of yogurt cones.

Economic Analysis

Consider once again the demand for hot fudge sundaes. Once the law of demand is identified and combined with the supply of hot fudge sundaes, then the hot fudge sundae market can be analyzed. The equilibrium price and equilibrium quantity can be identified.

This equilibrium, however, is based on the ceteris paribus assumption. In particular, other demand factors, such as buyers' income, preferences, and other prices, are held unchanged in the identification of the equilibrium. What happens to the price and quantity of hot fudge sundaes should one of these ceteris paribus factors change?