Hypothesis: Meaning in Economics
Vinod Anand | 03 Apr 2012

It is a statement about any set of phenomena, which is capable of being refuted by confrontation with facts. A hypothesis is therefore a theoretical proposition, which may be right or wrong, as opposed to a tautology, which is always true by definition.

EXAMPLES OF hypotheses in economics are: (a) the quantity of a good demanded depends on its price (1) consumers' expenditure is positively related to total disposable income; (c) firms attempt to maximize profits; (d) the quantity of money which individuals in the economy wish to hold depends on the level of national income, the general price level and the rate of interest. Examples of tautologies in economics, on the other hand, are: (a) national income is equal to the sum of consumers? expenditure, investment expenditure, government expenditure, and exports minus imports (b) the amount of a good bought is equal to the amount sold.

Any field of study which adopts a scientific method proceeds by formulating hypotheses, testing them against facts, rejecting those which appear to be refuted, or reformulating and amending as the feedback of information from the testing deems appropriate.

The procedure of formulating and testing hypothesis is the essence of scientific activity, whatever the classification of the field of study in terms of the conventional distinction between 'arts' and 'sciences'. In economic theory, there are many hypotheses, and anti-hypotheses, and the there comes out syntheses. It is in this way that economics a progressed a lot. This is why economics is termed as a dynamic science.