Final answer:
An economic hypothesis is a tentative and testable explanation of cause and effect in economics, not to be confused with the more established economic principles or laws such as demand and supply. Hypotheses are part of the scientific process in economics and can lead to the development of theories or refinement of existing laws.
Step-by-step explanation:
An economic hypothesis is a possible explanation of cause and effect within the arena of economics. Unlike an economic principle or law, which are broad, generalized statements that describe behavior within the economy and are typically backed by a substantial amount of empirical evidence, a hypothesis is more tentative and speculative. Economic principles, such as the laws of demand and supply, are foundational concepts that explain the behavior of economic agents. However, an economic hypothesis is used to explore and test these principles, enabling economists to develop theories or predict outcomes in various economic situations.
A hypothesis is not usually a normative statement, which is more of a value judgement or opinion, such as saying a rich country should care for its less fortunate citizens. Instead, hypotheses in economics - just as in the natural sciences - are intended to be testable through observation and experimentation.
Economic laws are established behaviors or patterns that have been confirmed repeatedly through empirical evidence, such as the law of supply and demand. Consequently, an economic hypothesis is not a stronger generalization than an economic law; rather, it's an initial step in the scientific process leading towards the formulation or refinement of an economic theory or law.