In academics, a collection of generalizations engineered by analysts is referred to as the laws. Similar to all sciences, economics possesses its own laws. A law is an assertion of casual relationship between a pair of scenario, one is a cause while the other is an effect.
How is an economic law formulated?
Each science employs phrases including hypothesis, theory and law. A hypothesis tries to describe certain details. In case the hypothesis could enlighten completely new facts, which are not contradicted by new findings, it is advanced to the position of a theory. Theory determines relationships between cause and effect. If a theory continues to prove its applicability over a period, a law may be formulated out of this.
Examples of Economic Laws
Engel’s Law of Family Expenditure claims that when income increases the amount of income used for foodstuffs declines. The law of demand declares that as price declines demand increases and vice versa. Greshm’s Law reports that bad money drives good money out of circulation. Similar crucial laws in economics are law of diminishing marginal utility, law of equi-marginal utility, the law of variable proportions etc.
Features of Economic Laws
The term ‘ceteris paribus’ refers to ‘other things being equal’. You could find this term in economics often. As per Prof. Seligman, economic laws are conditional or may be hypothetical and their credibility is determined by the satisfaction of certain conditions. That is the reason almost all economic laws are qualified by the statement, “other things being equal.” For instance, the law of demand states that individuals would probably purchase more at a reduced price than at a higher price. This holds valid only when “other things remain equal” that is income, preferences, prices of substitutes and so on continue being unaltered.
The laws of physical and natural sciences are precise as well as certain. Physical sciences work on lifeless material, which usually respond in the same manner; therefore, their laws are accurate and specific. They may be immutable. However, economic laws are not too accurate like that of physics or chemistry. That is because the economist’s laboratory is the overall economy, in which he or she needs to depend on reasoning or intuition substantially, which can be subject to differences from economist to economist. Roots for the inexactness of economic laws are the following:
- Non-availability of the laboratory process.
- Human beings are not identical in their choices or purchasing power.
- Variations in bias and fundamental beliefs are present among individuals.
Types of Economic laws
The economic laws are of two kinds: (a) Universal laws, (b) Relative laws
(a) Universal Laws
Certain economic laws are relevant to almost all locations as well as all of the time. These types of laws are universal in their application. They are in fact axiomatic in nature. The statements such as ‘saving is a function of income’, ‘human wants are unlimited’ and the like are commonly valid. Similarly, the law of demand and supply are appropriate to pretty much all nations and at all the time.
(b) Relative Laws
Nevertheless, not all economic laws are like axioms and consequently not universally valid. For instance, the laws, which happen to be valid in a capitalist economy may not be useful for a communist economy. Laws that are relevant to developed nations, may not be employable in developing countries. Laws, which apply at certain occasions, may not be useful during other situations. The samples of these kinds of laws are the laws of tariff, banking and commerce etcetera. This set of laws is known as relative laws.
Statements of Tendencies
Prof. Marshall says that economic laws are statements of tendencies. Generally, economic laws argue that under specific circumstances some things would take place. Economic laws usually do not offer any assurance that they ‘must’ occur. Economic laws are merely likelihood and not certainties.
Physical and natural sciences are predictable. The law of gravitation indicates precisely how various things are moved in a downwards direction by the power of gravity. Additionally, a particular volume of oxygen and hydrogen would certainly provide us with water. On the other hand, this is not the situation in economics. To illustrate, the laws of tides clarifies how you can find a surge and drop of waves twice a day under the impact of the sun and the moon, and also how you can find robust waves on new and full moon times. Hence, the science of tides could forecast when the tide will likely be the largest on any day at a specific area; however, its functionality could possibly be hindered by numerous unexpected situations like extreme rainfall or intense winds. Likewise, in human activities also, the anticipated course of action might not take place because of numerous unexpected instances.
Economic Laws and Biological Laws
Economics is a lot more related to biology when compared with physics. This is due to the fact that both economics and biology do something about lives instead of dealing with matter. However, in a respect, economics is at a poorer place than biology, i.e., the application of experimentation is practically not possible in economics.
Economic Laws and Laws of other Social Sciences
Samuelson regarded economics as the queen of social sciences. Economic laws tend to be more precise compared to the laws of other social sciences such as philosophy, history, politics and so on. That is because, in economics, economic activities are generally measured with the measuring rod of money.
Economic Laws and Moral Laws
Moral law is a rule of human behavior and suggests what we should do or what we should never do. As an illustration, ‘respect your elders’ and ‘speak truth’ are a few moral laws. If an individual violates or breaks a moral law, he is probably not punished by the authorities. Having said that, this could establish detestation against him by the fellow members of the society. Economic laws do not give you value judgment. They never prescribe what is ideal or what is bad for you. They basically offer facts.
Economic Laws and Government Laws
You must abide by the laws of government. The government laws are passed by the legislative body and imposed by the executives. In case the resident violates these laws, he is definitely penalized. Economic laws are not orders. There is absolutely no issue of following or disobeying the economic laws. Economic laws are a measure and not essential. For instance, a person who violates the law of demand can never be penalized. Government laws could be mended, revised or discontinued but economic laws are long lasting.
© 2013 Sundaram Ponnusamy