1.2 How do economists approach the world?

Economic methodology uses models, assumptions and evidence to simplify complex systems and test explanations. Positive statements can be checked against evidence; normative judgements depend on values.

Ceteris paribus isolates one relationship; reasoning connects observations, theory and predictions. Models are useful only within assumptions.

State claim, assumptions, evidence and whether it is positive or normative.

A model predicts a tax reduces demand holding other factors constant; data can test it, but whether the tax is desirable is normative.

A model is not reality and correlation alone does not prove causation.

A positive method moves from logic and hypotheses through a simplified model to predictions, empirical testing and possible refutation; evidence that repeatedly contradicts a prediction should lead to revision or rejection. Normative policy judgments depend on values. Equality means sameness in a stated dimension, while equity concerns fairness and may justify unequal treatment or outcomes; neither term has one uncontested policy interpretation.

Economic thought is historically situated. In the 18th century Adam Smith emphasized specialization, exchange and laissez-faire; 19th-century classical thought developed utility, marginal reasoning and Say's law, while Marx criticized capitalist ownership and distribution.

The 20th-century Keynesian revolution argued that deficient aggregate demand can sustain unemployment and justify macroeconomic intervention. Monetarist and new classical counter-revolutions restored emphasis on money, expectations, markets and limits of discretionary policy.

In the 21st century, behavioural economics uses psychology to question fully rational choice, while sustainability and interdependence connect economy, society and environment. Circular-economy thinking seeks to reduce waste by keeping resources in use rather than following a linear take–make–dispose model.

A recession can be interpreted through Keynesian demand failure, whereas a new classical account may emphasize expectations and market adjustment. The different mechanism changes the recommended policy.

These are evolving analytical traditions, not rigid labels. Compare their assumptions, mechanism and context; do not attribute every modern policy to one thinker or claim that circularity eliminates all scarcity.