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Mirco PP1

# Mirco PP1 - Assumptions Build Models ECO284 – ECO284 –...

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Unformatted text preview: Assumptions Build Models ECO284 – ECO284 – Microeconomics Dr. Dennis Foster Introduction Generate Conclusions/Predictions Compare to the real world Q Price Supply B A Q =f(K,L) Pe Demand Qe Quantity K ECO284 ­ Microeconomics ECO284 ­ Microeconomics A framework for understanding. . . Limited Resources Scarcity Choices (Opportunity) Costs Unlimited Wants Premise: Rational self­interest Choices ­ Choices ­ there’s no way around them. What will be produced? How will it be produced? Allocative efficiency Productive efficiency Distributive efficiency Who will get what is produced? Efficiency ­ the measure of how well we answer these questions. Opportunity Costs Opportunity Costs Making tradeoffs Weighing costs and benefits The value of the next best choice: Attending class . . . Every person/group/society makes choices. TANSTAAFL – look it up. Economic methods Economic methods Theories & models of behavior: Assumptions Build Models Generate Conclusions/Predictions Compare to the real world Economic methods Economic methods Ceteris paribus assumption. Decisions made at the margin. Decisions are made by weighing benefits and costs. Theories cannot be proved. Beware of “logical fallacies.” – e.g. post hoc, non sequitor, anecdotes Graphing Graphing A picture is worth a thousand words . . . Q B Q =f(K,L) A K Graphing Graphing When x is: 1. the number of days in a week 2. amount of apples people want to buy 3. (In a world with only 2 goods) amount of films we can produce 4. amount of insulin people want to buy 5. amount of workers employed and y is: price of apples price of apples amount of wheat we can produce price of insulin amount of hamburgers produced per hour at the Burger King. price of white Ford Taurus’ number of days in the week 6. amount of white Ford Taurus’ people want to buy 7. number of U.S. Senate seats Assumptions Build Models ECO284 – ECO284 – Microeconomics Dr. Dennis Foster Introduction Generate Conclusions/Predictions Compare to the real world Q Price Supply B A Q =f(K,L) Pe Demand Qe Quantity K ECO284 ­ Microeconomics ECO284 ­ Microeconomics “Economics is the study of mankind in the ordinary business of life.” ­­Alfred Marshall ...
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