Chapter1 - economic theories---a look at the methodology of...

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Chapter 1 Introducing the Economic Way of Thinking CHAPTER SUMMARY Scarcity permeates the entire human experience. Scarcity means we are unable to have as much as we would like to have. Our wants are unlimited. But, our production capabilities are limited by our factors of production, which include land, labor (the entrepreneur is a special type of labor) and capital (plant and equipment). Because we are faced with scarcity we must make choices. Choices are made at the "macro" and "micro" level. Macroeconomics is concerned with the entire economic system, whereas microeconomics is concerned with some particular segment of the economy. Economics can be further subdivided into positive ("what is") and normative ("what ought to be") economic analysis. We would all be well advised to first have a firm grasp of "what is" before we argue "what ought to be." This takes us to a look at how economists derive positive
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Unformatted text preview: economic theories---a look at the methodology of economics. That methodology is the same scientific methodology used in all sciences---it is the process of induction and deduction. Theories can be expressed: 1) verbally, or in written form, 2) as a numerical table, 3) graphically, or 4) mathematically. Theories are helpful to understanding the relationship between economic variables but should be used with caution. Two common pitfalls to clear thinking are the failure to understand the ceteris paribus assumption and confusing association and causation . This chapter concludes with a review of careers in economics. The appendix to this chapter focuses on how theories can be expressed graphically. Graphs are visual aids that help us see the direct or inverse relationship between two or more sets of data or variables....
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This note was uploaded on 03/19/2011 for the course ECON 302 taught by Professor Wroee during the Spring '08 term at American River.

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