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Ch 1-2 - What is Economics, The Economic Problem

Ch 1-2 - What is Economics, The Economic Problem - Ch 1 and...

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Ch. 1 and 2 Ch. 1 and 2 What is economics? What is economics? The economic problem The economic problem Olivier Giovannoni ECO 304K: Introduction to Microeconomics
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Lectures are not repetitions word for word of the textbook. The tests are based on what is in - the textbook - the PPT slides - the lectures. Ch. 1 – What is Economics? 2
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DEFI NI TI ONS DEFI NI TI ONS “economists’ words” Ch. 1 – What is Economics? 3
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Our economy is an economy of exchange (c.f. real GDP graphs, “growing exchange”). To exchange we need to produce and to produce we need: Natural resources (like land) rent Capital (money and machines) interest …and entrepreneurs profit Labor (workers) wage Those are called factors of production (in green are the rewards of those factors) . Ch. 1 – What is Economics? 4 Definitions Definitions
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Definitions (cont.) Definitions (cont.) Once we have the factors of production we need to tell a story –as close to reality as possible – that explains how our economy works. For this we need to define two types of statements , and we need to define what a model and a theory are. We also need to start thinking graphically . Two types of statements: Positive statements (“what is”) something that can be checked against facts. “it is raining”, “the sea is blue” Normative statements (“what ought to be”) something that expresses values and beliefs, and cannot be checked against facts. religion, a policy Ch. 1 – What is Economics? 5
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An economic model is a simplified version of reality that is good enough, and general enough, to help us understand the world better ( a map ). A model concentrates on a specific area or question ( choices , S&D , monopoly situations ) and is built on assumptions (“ ceteris paribus ”=“everything else equal”) An economic theory is a collection of coherent models that address general issues . A theory is more general but still rests on assumptions. Also in economics we like to graph things…(see Ch. 1 – What is Economics? 6 Definitions (cont.) Definitions (cont.)
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Depending on the economic question, there two types of economic analysis: 1. MACRO economics studies the performance of a country, or group of countries, by concentrating on broad issues (inflation, unemployment, growth, poverty, crises, the causes and effects of globalization, technology, the environment…). Modern macro developed in the UK in the 1930s Has more historical, sociological and political depth Type of macro economic question: economic policy to revive the economy, analysis of unemployment, analysis of international trade, or any variable that is global Macroeconomics, especially when empirical, has more positive statements than microeconomics Ch. 1 – What is Economics? 7 Definitions (cont.) Definitions (cont.)
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2. MICRO economics is the study the individuals (consumers, businesses), their actions (choices and production) and their interactions (the markets… and the government).
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