First Principles

1. The more aspects of reality are taken into consideration, the more useful an economic model is. 2. According to Karl Popper, a basic requisite for the quality of scientific theories is that one can refute them. 3. Concerning logical statements: one can derive a false hypothesis from false assumptions. 4. Modern microeconomics is macro-founded. 1. Economics, as a positive science, tries to explain why social phenomena work the way they work. Economics, as a negative science, tries to explain why social phenomena do not work the way they work. 2. If an economist tries to determine how a country should increase taxes in the best possible way, she or he is practicing normative science. 3. If an assumption in a scientific theory is incorrect, the theory must be discarded because it cannot contribute to the understanding of reality. 4. In economics, one investigates the interplay of human behavior on the individual level. 1. With regards to economics, positive science answers the question as to how humans should cope with the phenomena of scarcity. 2. Quantities of goods that are not on the production-possibility frontier, cannot be produced. 3. Modern macroeconomics is not “micro-founded” because it concentrates on economic aggregates. 4. Opportunity costs are costs of the past that cannot be influenced any longer.