EC 201 NOTES 8.27 - Economist’s strength is positive...

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EC 201 NOTES 8/29/07 Megan Block – [email protected] Economics – the study of how people choose to allocate scarce resources (science of choice) 1.) resources are scarce but desires are infinite = must make choices 3 questions that must be addressed by human society 1) What shall be produced? -these choices are made by interactions of buyers and sellers in markets 2) How shall those goods and services be produced? 3) For whom? Who gets all this stuff? Income distribution (bill gates to person d living under the bridge.) Rewards received in markets (going to college) Positive (actual workings of economy, can be shown to be correct or incorrect) statements vs. normative (what ought to be, what should be. Based on value judgments. Can’t be proven to be correct or incorrect) statements
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Unformatted text preview: Economist’s strength is positive analysis Microeconomics (studying the behavior of the littlest units that are making the decisions: mostly households and business firms) vs. Macroeconomics (study of the overall economy wide aggregates. Overall rate of employment of workers or unemployment, or the overall rate of inflation, or overall rate of economic growth) Macro must rest on a micro foundation. Micro deals with important topics – effects of taxes + tariffs, effects of education on earnings, economics of pollution, policies toward big business Analytical perspective: difficult or impossible to do controlled laboratory experiments. Thought experiments > data Often invoke an assumption called “ceteris paribus” or “all else equal”...
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