ECON102-Lecture 2-Economic Principles

ECON102-Lecture 2-Economic Principles - The economic...

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The economic principles that  shape the world economy Lecture 2 1
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Introduction  Last time we finished the lecture with the  conclusion that a little bit of knowledge of  the economic principles is needed Motivation for this : this knowledge is a  precursor and companion for the textbook  and for meaningful discussions of the  issues related to the world economy 2
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Introduction Economics is one of the social sciences  - > tries to make sense of society and how it  works We must start our analysis of people’s  behavior somewhere -> we need to make  assumptions about people’s behavior 3
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Some dilemmas in studying Economics In Economics, it is assumed that people  are fundamentally the same “There is a greater difference between one  man and another man than between two  animals of different species”                                  (Michel de Montaigne) 4
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Some dilemmas in studying Economics In real life, people often behave like what we  assume Just about as often, people do not behave like  what we assume The economic assumptions and principles are  quite clear Yet the world is often a mess 5
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Some dilemmas in studying Economics Another important assumption often made  in Economics:   People are rational  This means that people  compare the  costs and benefits  when making a  decision, and if the benefits of an action  outweigh its costs, then people decide to  take this action I know for a fact that people are often not  rational 6
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Some dilemmas in studying Economics Why rationality is important in Economics? 1.  If people are rational, they respond in a  predictable  way to incentives, make  predictable choices  ->   It is possible to make sense of their  behavior It is possible to understand how society  works 7
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Some dilemmas in studying Economics Why rationality is important in Economics? 2. When social issues are examined, the concepts  of  right and wrong  can become very murky  ->   Wrong  -  from whose point of view?    Right  -  from whose point of view? The concepts of right and wrong are often a  matter of perspective. Instead of focusing on what is right and wrong,  economists focus on  costs and benefits   -> Cost-benefit analysis allows a more  detached,  objective  approach 8
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Scarcity 9 Scarcity  is a fundamental property of our world;  underlies all economic principles Scarcity  means that the resources are limited Scarcity  is not the same as  rarity !
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Scarcity  When something is  rare , it simply means  there’s a small amount of it around. Example:  sunshine in the winter in 
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ECON102-Lecture 2-Economic Principles - The economic...

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