ABSTRACT
This chapter describes three major ways to investigate and understand economic realities: empirical, theoretical, and historical. It discusses how to approach tradeoffs and presents more in-depth analysis of the different kinds of economic activity, discussing the economic roles played by households and communities, businesses, government, and nonprofit organizations. Empirical investigation is observation and recording of specific happenings in the world. In economics, empirical investigation often involves numerical data. Empirical investigation creates the foundation for macroeconomic analysis. Many economic theories are based on “thought experiments.” In the physical sciences, much theorizing is based on controlled experiments in the laboratory. In order to make it possible to build a theory, it is sometimes useful to isolate certain aspects of economic behavior from their larger historical, social, and environmental context, in order to examine more closely the complex elements involved. The discipline of economics, like most other areas of academic and public discussion, has a long history of varying approaches, beliefs, and conclusions.
