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Scientists, economists, and detectives have much in common: they all want tofigure out what’s going on in the world around them. To do this, they rely onboth theory and observation. They build theories in an attempt to make sense ofwhat they see happening. They then turn to more systematic observation to evaluatethe theories’ validity. Only when theory and evidence come into line dothey feel they understand the situation. This chapter discusses the types of observation that economists use to develop and test their theories.Casual observation is one source of information about what’s happening inthe economy. When you go shopping, you see how fast prices are rising. Whenyou look for a job, you learn whether firms are hiring. Because we are all participantsin the economy, we get some sense of...