Forming Hypotheses & Questions About Economic Issues

Instructor: Beth Loy

Dr. Loy has a Ph.D. in Resource Economics; master's degrees in economics, human resources, and safety; and has taught masters and doctorate level courses in statistics, research methods, economics, and management.

This lesson discusses how to pose questions and formulate hypotheses about economic issues. Review examples to learn more about what works, then take a brief quiz.

Posing Questions And Hypotheses

One of the most practical aspects of economics is the development of questions and hypotheses. A hypothesis is an educated guess. We formulate an economic question, create a hypothesis about this question, and test to accept or reject that hypothesis. In the process, we are able to create hypothetical environments and evaluate economic behaviors.

This lesson looks at how to create a question and formulate a hypothesis. We begin with how to develop an economic question.

Developing Economic Questions

When creating questions about economics, you want to find a topic that is interesting and timely. Once this is done, developing an economic question that is answerable is key. To do this you want to follow a few criteria. A good question:

  • Isn't too broad or too narrow,
  • Is able to be answered given time and budget constraints,
  • Is important to your audience,
  • Is not leading in a way that is biased or discriminatory,
  • Is focused on one economic problem, and
  • Doesn't have an obvious answer.

Examples Of Poor Economic Questions

In learning how to formulate an economic question, it helps to look at what a good question is not. Let's look at two examples of questions that do not meet our criteria for a good question:

Example 1: Will the U.S. economy improve if the Keystone Pipeline is finished or will the environmental risks squash any growth? This is not a good question because it is:

  • too broad,
  • focused on more than one economic problem, and
  • impossible to budget for.

To ask this question correctly you would say: Will the U.S. Gross National Product increase after the completion of the Keystone Pipeline?

oil pipeline over river

Example 2: Does the Democratic Party need to be more liberal to improve the economy? This is not a good question because it is:

  • leading from a biased perspective, and
  • it is not focused on an economic problem.

A better way to ask this question would be: Would implementing the Democratic Party's minimum wage policy improve the economy.

Developing a Hypothesis

Once we develop a solid economic question, we look to develop a hypothesis for it so we can set the criteria for making a decision, collect and organize relevant data, and test the hypothesis. Doing this will answer this economic question and help us make determinations about economic behavior.

Hypotheses are short and concise and are defined as either alternative or null. An alternative hypothesis is one that says there will be an effect. A null hypothesis states that there will be no effect. Either can be used to test a research question; however, the null hypothesis is the most commonly used and the one used almost exclusively in economics.

A hypothesis:

  • Isn't too broad or too narrow,
  • Can be tested,
  • Is answerable with data collection,
  • Is important to the field even when proven false, and
  • Isn't based in morality or ethics.

Examples Of Economic Questions And Their Hypotheses

To develop a hypothesis that accompanies an economic question, an extensive review of the literature and associated research is necessary. You are making an educated guess about a question of interest. Examples help with understanding how to do this.

The following examples show questions that meet all of the criteria for a good economic question with a corresponding null hypothesis.

Example 1: How does the number of Ebola diagnoses in Guinea affect inflation?

  • Null Hypothesis: The number of Ebola diagnoses in Guinea has no significant impact on inflation in the country.

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