Exercises: Economics as a science

Explain in your own words why economics is called a social science: what it studies, how it works (observe, measure, test) and how it is similar to and different from a natural science like biology. What is special about studying people's decisions?

Classify these statements into positive (describe what is and can be tested with data) or normative (express opinions on what ought to be):

1. a) 'Youth unemployment exceeds $25\ \%$ in the province.'
2. b) 'The council should lower business rates for shops in the town centre.'
3. c) 'When bus fares go up, fewer people use it.'
4. d) 'Pensions must be raised whatever the cost.'
5. e) 'Last year's inflation was $3\ \%$.'

The diagram shows the wall display that the school economics club uses to organise the month's news: on one side, those looking closely (microeconomics); on the other, those looking at the country as a whole (macroeconomics). One card is left unplaced.

1. a) The missing card says: 'The government raises the minimum wage nationwide'. State which box it belongs in and explain why.
2. b) Write two new cards for each box with news stories you make up.

The class wants to know whether it is true that 'teenagers don't read any more', and the teacher suggests checking it the way an economist would.

1. a) Write a hypothesis: a concrete statement that can be checked with data (for example, about how many books a $15$-year-old student reads per year).
2. b) Say what data you would collect at your school and who you would ask so that the sample represents all students.
3. c) Explain why asking your four friends is not enough (your friends are similar to you: the sample ends up biased).

A headline says: 'The month with the highest ice-cream sales is also the month with the most drownings at the beach.'

1. a) Explain the difference between correlation (two things rising at the same time) and causality (one thing causing the other).
2. b) What third variable explains both at once? Think about what ice creams and the beach have in common.
3. c) Make up another example of two things that happen at the same time without one causing the other.

Economists work with data from reliable sources: the National Statistics Institute (INE) publishes the country's statistics (unemployment, prices, population) and the council publishes those of the town.

1. a) Explain why an economist prefers official data over 'what people are saying on social media'.
2. b) For each question, say where you would look up the figure: how many young people are unemployed in Spain; how many residents your town has; how much a kilo of oranges costs at your market.

The news sometimes mixes fact and opinion in the same sentence: 'Youth unemployment, which is a disgrace, rose to $26\ \%$.'

1. a) Split the sentence into its positive part (the fact) and its normative part (the judgement).
2. b) Rewrite the headline twice — once with only the fact and once with only the opinion — and explain what the reader gains when they are separated.

Explain what an economic forecast is and why economists warn that it can fail, using the example of the sales forecast for the school party stall: it depends on the weather, on exams or on another party on the same day.

1. a) Name two factors that would make the sales forecast fail.
2. b) Argue whether the fact that it can fail means forecasting is useless (think of the weather forecast: it fails sometimes, but it warns you to take an umbrella).

Classify each headline according to two criteria: micro or macro, and positive or normative. Justify your answer for one of them.

1. a) 'Olive oil prices double due to poor harvest.'
2. b) 'Spain should invest more in solar energy.'
3. c) 'Unemployment nationwide falls to $11\ \%$.'
4. d) 'The ice cream parlour in the square closes down due to rent increase.'

A tube map does not look like the real city: the streets are drawn straight and the distances are distorted. And yet, it gets you anywhere. Use this example to explain what an economic model is, what the purpose of simplifying reality is, and what is lost when doing so. Give a typical assumption of economic models (for example: 'all buyers know all prices') and comment on whether it is realistic.

'If ticket prices go up, fewer are sold, ceteris paribus.' Explain what that Latin phrase means ('all other things equal') and why economists use it so much. Give an example where it does not hold true: the price goes up and yet more tickets are sold.

The economics club surveys $200$ students: $150$ say they would buy fruit at break time if the kiosk sold it at $1\ \text{€}$. The kiosk puts it on sale and only $40$ a day buy it.

1. a) Explain two reasons why the survey may have failed (people answer what looks good; stating an intention is not the same as doing it).
2. b) Design how you would repeat the check to get it right: asking what they did yesterday instead of what they would do, or testing for a week with a real price.

Classify each research question as microeconomics or macroeconomics and justify one of them:

1. a) Why has the rent on flats in your city gone up?
2. b) Why is the average rent rising across the whole country?
3. c) How many workers will the industrial estate's factory hire next year?
4. d) Will the Spanish economy grow by $2\ \%$ this year?

A city observes that the years with more tourists are also the years with more noise complaints.

1. a) Is there a correlation? Does that mean tourists cause all the noise?
2. b) Propose how to check if a causal relationship exists and name two third factors that could explain it.

A local newspaper headlines 'Unemployment soars by $50\ \%$ in Villaharta' because the village goes from $4$ to $6$ unemployed people, with a working population of $1.000$ people.

1. a) Check that the percentage increase is mathematically true and explain why it is misleading with such small numbers.
2. b) Calculate the unemployment rate before and after, and rewrite the headline honestly.

The council raises the waste collection charge for bars by $20\ \%$ to fund street cleaning.

1. a) Write a positive statement about its effects that can be checked with data (what will happen to menu prices or to the number of pavement terraces) and explain how you would check it a year later.
2. b) Write the normative statement the hospitality association would defend and the one the council's cleaning department would defend.

A shopkeeper on a downtown avenue indignantly states at a neighborhood meeting: "Ever since the city council opened the bike lane six months ago, revenue at my clothing store has dropped by $12\,\%$. The bike lane is ruining local commerce."

1. a) Explain what mistake this shopkeeper makes by attributing the drop in their sales exclusively to the bike lane construction, and relate your answer to the methodological principle of ceteris paribus.
2. b) Design a rigorous study to test whether the bike lane benefits or harms retail sales in the area: state what data you would collect, what time periods you would compare, and what control group you would use to isolate other economic factors (such as inflation, seasonality, or e-commerce).
3. c) If you discover that on a very similar avenue without a bike lane sales fell by $18\,\%$ over the same period, how does the interpretation of the bike lane's impact change? Justify your answer.

A town hall meeting is debating banning vehicle traffic in the city center. During the session, the following four statements are made:

1. "Last year, nitrogen dioxide levels exceeded the legal limit for 42 days in the city center."

2. "The city center should be a space exclusively for pedestrians and community life, not for private cars."

3. "Pedestrianization will increase small business sales by $8\,\%$, just as happened in the neighboring city."

4. "It is unfair to restrict the freedom of drivers who need their car to get to work."

1. a) Classify each of the four statements as positive or normative. Justify your decision by indicating the scientific criterion you used in each case.
2. b) Imagine that an independent technical report shows that retail sales fell by $5\,\%$ following a similar measure in another comparable municipality. Which of the four statements would be disproven by the data, and which would remain defensible without logical contradiction?
3. c) Based on the previous result, justify why economics can resolve positive disagreements but cannot settle normative debates on its own.

A 4th-year ESO student comments in Economics class: "Models like the Circular Flow of Income or the Production Possibility Frontier are useless because reality is infinitely more complex: in the real world there are millions of people, banks, governments, and foreign trade that these simplistic diagrams completely ignore."

1. a) Rebut their argument using the analogy of a transit map app: explain what would happen if a subway or road map tried to reproduce reality with complete accuracy, and conclude why simplifying through assumptions is a virtue and not a flaw of scientific models.
2. b) Taking the basic Circular Flow of Income model (only households and firms, goods market, and factor market) as a reference:

• Justify an essential economic relationship that this model allows you to understand clearly.

• Point out a real economic phenomenon that is impossible to analyze with this simple model, and what agent or market would need to be incorporated into it to be able to explain it.

1. c) State a criterion that determines when a simplifying assumption is valid and when it invalidates the conclusions of an economic model.

During an election campaign, a candidate promised to lower the youth unemployment rate from $30\,\%$ to $20\,\%$ in one year. After twelve months, they present the following official data for their municipality to demonstrate their success:

• At the start of the term: Population aged 16 to 24 = $10.000$; Labor force = $6.000$; Employed = $4.200$; Unemployed = $1.800$ (Unemployment rate = $30\,\%$).

• At the end of the year: Population aged 16 to 24 = $10.000$; Labor force = $4.500$; Employed = $3.600$; Unemployed = $900$ (Unemployment rate = $20\,\%$).

1. a) Check whether the candidate has numerically fulfilled their promise regarding the unemployment rate by calculating that percentage for the end of the year.
2. b) Analyze what actually happened to youth employment: calculate the change (both absolute and percentage) in the number of people working.
3. c) Explain the apparent paradox: why did the unemployment rate decrease even though $600$ youth jobs were lost? What economic phenomenon explains the drop in the labor force?
4. d) Propose a complementary indicator that an independent analyst should use to assess the real state of youth employment without the distortion of the labor force, and calculate its value at both points in time.

A consulting firm presents the following report to a telephone company: "We have programmed an algorithm using data from $500.000$ customers. The mathematical model predicts that if you raise the monthly rate by $2$ euros, only $1,5\,\%$ of users will cancel their service and revenue will increase by $12\,\%$. Therefore, the human and psychological factor does not need to be taken into account."

1. a) Justify two reasons why economics needs to rely on mathematics and quantitative models instead of relying solely on impressions or intuitions.
2. b) Explain what qualitative human assumptions or factors (collective emotions, sense of unfairness, social media campaigns, or competitor reactions) could cause the algorithm's mathematical prediction to fail.
3. c) Faced with this issue, an executive states: "Since people are not numbers or machines, mathematics is useless in economics and we should not use it." Rebut their position by distinguishing between predicting the behavior of a specific individual and predicting the aggregate behavior of a population.

Design a complete mini-research project on saving in your year group, following the scientific method:

1. a) Formulate the research question and a testable hypothesis.
2. b) Define the sample: how many people and who you would ask so that it represents the whole year group.
3. c) Write three neutral survey questions that do not push the answer (nothing like 'you hardly save anything, do you?').
4. d) Explain what you would do with the data to draw a conclusion and communicate it.

Analyze the following three economic news stories and identify the methodological or statistical trap each one contains:

1. a) "Data show that in the provinces where beach umbrella sales grow the most, hospitality hiring increases the most. Therefore, buying umbrellas stimulates employment and pulls the country out of the crisis."
2. b) "Our startup's investment in innovation has skyrocketed by $300\,\%$ this quarter, while the industry-leading multinational has barely increased it by $3\,\%$. We are investing with vastly more volume and financial effort than the market leader."
3. c) "The government announces that the budget allocated to school scholarships this year is the highest in history: $1.200$ million euros compared to $1.000$ million five years ago, meaning families enjoy significantly greater financial support." (Additional fact: during that period, cumulative inflation was $25\,\%$ and the number of students increased by $10\,\%$).

For each case:

1. Reasonably explain why the headline's conclusion is misleading or incorrect.

2. Propose what calculation, additional data, or methodological adjustment allows the situation to be interpreted with scientific rigor.

The National Statistics Institute publishes that "the early school leaving rate among young people from low-income families is double that of high-income families". In light of this data, two advisory economists from different political parties express their proposals:

• Economist A: "The State must fund free tutoring sessions and grant living allowances to these students, because ensuring equal opportunities must be the priority of the educational system".

• Economist B: "The State should not intervene by increasing public spending or taxes; the priority is to make dual vocational training programmes more flexible so that companies hire young interns and the market rewards effort efficiently".

1. a) Identify in the text the positive statement and the two normative proposals, justifying the methodological difference between the two.
2. b) Explain why both economists can fully agree on the empirical data in the report and, at the same time, propose opposing measures without either making a technical or statistical error.
3. c) In light of this discrepancy, define the role of economic science (and economists) and the role of citizens and their elected representatives in public decision-making.

Unit challenge. Become an economic analyst and produce a short report (one page) on how territorial inequality shapes economic decisions and well-being in your area.

1. Empirical data collection: Access the INE website (Atlas de Distribución de Renta) and gather the average income per inhabitant for your census section or municipality, comparing it with that of another nearby municipality with a different income (identifying a difference greater than $15,5$ %).

2. Scientific analysis: Formulate a testable hypothesis on how this gap affects the problem of scarcity and families' opportunity cost when purchasing everyday goods. In your writing, explicitly differentiate positive economics statements (testable facts and data) from normative economics statements (opinions on how things ought to be).

3. Reasoned proposal: Put forward two viable measures to boost local commerce and reduce the detected inequality in well-being, arguing what the public administration would have to give up in order to fund them.

Assessment criteria:

• Rigour in the empirical handling of INE data and clear distinction between positive and normative analysis.

• Accurate and justified application of the concepts of scarcity, opportunity cost, and well-being.

• Feasibility and economic consistency of the proposed commercial and redistributive measures.