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chapter 1 text - -We are interested in models that make...

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Pam 2000 Chapter 1 -Microecon is often called “price theory” to emphasize the important role that prices play. -Consumers pick the mix of goods and services that makes them as happy as possible given their limited wealth. -Society faces 3 trade offs: 1. Which goods and services to produce- if it produces more of one it must produce less of another. 2. How to produce 3. Who gets the goods and services -In most countries, how many cars of each type are produced and who gets them is determined by how much it costs to make cars. -An economic model is a simplification of reality that contains only its most important features.
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Unformatted text preview: -We are interested in models that make clear, testable predictions.-A key assumption is that individuals allocate their scarce resources so as to make themselves as well off as possible.-Positive statement: a testable hypothesis about cause and effect. Concerns what will happen.-Normative statement: a conclusion as to whether something is good or bad. Concerns what should happen.-A policy debate will be more informed if positive analyses are conducted first....
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