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

Ch 1-2 What is - Ch 1 and 2 Ch 1 and 2 What is economics What is economics The economic pr oblem The economic pr oblem Olivier Giovannoni ECO 304K

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Unformatted text preview: Ch. 1 and 2 Ch. 1 and 2 What is economics? What is economics? The economic pr oblem The economic pr oblem Olivier Giovannoni ECO 304K: I ntroduction to Microeconomics Lectur es ar e not r epetitions wor d for wor d of the textbook. The tests are based on what is in - the textbook - the PPT slides- the lectures. Ch. 1 – What is Economics? 2 DEFI NI TI ONS DEFI NI TI ONS “economists’ wor ds” Ch. 1 – What is Economics? 3 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) → r ent Capital (money and machines) → inter est …and entrepreneurs → pr ofit Labor (workers) → wage Those are called factor s of pr oduction (in gr een ar e the r ewar ds of those factor s) . Ch. 1 – What is Economics? 4 Definitions Definitions 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 theor y are. We also need to start thinking gr aphically . Two types of statements: ◦ Positive statements (“what is”) something that can be checked against facts. → “it is raining”, “the sea is blue” ◦ Nor mative statements (“what ought to be”) something that expresses values and beliefs, and Ch. 1 – What is Economics? 5 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 ar ea or question ( → choices , S& D , monopoly situations ) and is built on assumptions (“ ceteris paribus ”=“everything else equal”) An economic theor y is a collection of coher ent models that address gener al issues . A theory is more general but still rests on assumptions. Ch. 1 – What is Economics? 6 Definitions (cont.) Definitions (cont.) Depending on the economic question, ther e two types of economic analysis: 1. M ACRO economics studies the performance of a country, or group of countries, by concentrating on br oad 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 Ch. 1 – What is Economics? 7 Definitions (cont.) Definitions (cont.) 2. M I CRO economics is the study the individuals (consumers, businesses), their actions (choices and production) and their inter actions (the markets… and the government)....
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This note was uploaded on 09/10/2009 for the course ECON 33815 taught by Professor Giovannoni during the Spring '08 term at University of Texas at Austin.

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Ch 1-2 What is - Ch 1 and 2 Ch 1 and 2 What is economics What is economics The economic pr oblem The economic pr oblem Olivier Giovannoni ECO 304K

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