1. 1 The Scientific Method Positive Vs. Normative Economics The Scientific Method Necessary & Sufficient Conditions Testing Causality Fallacious Arguments Testing Theory

2. 2 Positive Vs. Normative Economics Positive Economics Statements of fact & logical deductions Ex: If it rains the football field will get wet. Normative Economics Statements about what should be (value judgments) Example: The football field is better when it is wet.

3. 3 Carefully study it. Systematic Observation & Measurement Confirm / Re-examine Not Prove or Disprove Observe a Phenomenon Develop a theory to explain the data Check the implications of your theory against new data from similar circumstances The Scientific Method

4. 4 Necessary & Sufficient Conditions A is said to be a sufficient condition for B. If A happens B will be guaranteed to occur. EX: Ceteris Paribus, if it rains then the football field will be wet. Necessary & Sufficient Conditions.

5. 5 Testing Causality If A is observed and ceteris paribus B does not occur then the idea that A causes B is called into question. EX: Theory: C.P. Price is negatively related to quantity demanded. –We observe price falling and ceteris paribus quantity demanded also falls. Does the data support the theory?

6. 6 Testing Causality Econometrically we can estimate an equation for demand. Q = f(Price, Income, Other Variables) What is the predicted sign on the coefficient of price? (Is it significant?)

7. 7 Fallacies Denying the antecedent: It did not rain therefore the football field cannot be wet (How about a sprinkler system?) Affirming the consequent: The field is wet therefore it must have rained. (Sprinklers may have been on)

8. 8 Contrapositive The only logical equivalent to A=> B is the contrapositive statement ~B => ~A. EX1: If it rains then the field will be wet. (Contrapositive) The field is dry therefore it did not rain. EX2: If cigarettes are addictive then past consumption influences present consumption. (Contrapositive) If past consumption does not influence present consumption then cigarettes are not addictive.

9. 9 Competitive Balance in the NFL Measuring Competition: HHI =  (MS i ) 2 MS i = Market Share for a Team = (Wins for that team / # of League Games)

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11. 11 Factors Affecting Competition HHI = f (FA/SAL, EXPAN, EXPAN(1) STRIKE, PLAYER TALENT, HHI(-1)) FA/SAL = Free Agency/ Salary Cap Year 1993 EXPAN= Expansion Year EXPAN (1) = Year after expansion STRIKE = Strike Year Player Talent Concentration

12. 12 PLAYER TALENT = HHIPF + HHIPA HHIPF =  (Points Scored i / Total Points Scored in the League) 2 HHIPA =  (Points Scored Against i / Total Points Scored Against in the League) 2

13. 13 Results