Class01_07 - 01/07/2008 Class Notes (cover Chapter 1 in the...

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01/07/2008 Class Notes (cover Chapter 1 in the textbook) Class Outline Introduction Course Outline What is Economics? Microeconomics The Economic Way of Thinking What is Economics? Def. Economics Economics is the social science that studies the choices we make as we cope with scarcity , and the incentives that influence and reconcile our choices; Def. Scarcity Available resources are insufficient to satisfy all wants; SCARCITY CHOICE! Def. Incentives Rewards (=benefits) or costs that encourage or discourage an action. If Benefits > Costs take the action! If Benefits < Costs do not take the action! Net Benefit= Benefits- Costs A rational agent maximizes the Net Benefit! In Economics the rationality of agents is always assumed. 1
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We create theories and models we want to test! Def. Economic Model An economic model is a description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand. Obstacles in Economics: 1. We cannot do easily experiments 2. Most economic behavior has many simultaneous causes. Disentangling cause and effect may be difficult!
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This note was uploaded on 04/29/2008 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University.

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Class01_07 - 01/07/2008 Class Notes (cover Chapter 1 in the...

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