Economics 200 - Ch. 1 Notes

Economics 200 - Ch. 1 Notes - : Focus on the variables in...

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Econ 200 Ch. 1 Notes The Role of Theory : Economic Model : simplification of economic reality that is used to make predictions about the real world. -utilizes models such as the “circular flow” (people have many different theories) “The Scientific Method” Step 1: Identify the Question and Define Relevant Variables -A variable is a measure that can take on different values at different times. Step 2: Specify Assumptions -“Ceteris Paribus” (other things remain constant “assumption”). Identify the variables of interest and focus exclusively on the relationships among them, assuming that things stay constant . Behavioral assumptions : describes the expected behavior of economic decision makers (what motivates them). Step 3: Formulate a hypothesis : The purpose of a hypothesis is to help make predictions about cause and effect in the real world. Step 4: Test the hypothesis
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Unformatted text preview: : Focus on the variables in question while controlling for other effects not assumed to change. Normative vs. Positive Positive economic statement a statement that can be proved or disproved by reference to facts. Normative economic statement reflects an opinion, which cannot be proved or disproved by facts. Positive statements concern what is ; normative statements concern what should be . The random actions of individuals tend to offset one another, so the average behavior of a large group can be predicted more accurately than the behavior of a particular individual Association is causation fallacy : incorrect idea that if two variables are associated in time, one must cause the other. Fallacy of composition : false belief that what is true for the individual must be true for the group....
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Economics 200 - Ch. 1 Notes - : Focus on the variables in...

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