Chapter 1 notes - Thinkwell chapter 1 notes

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Defining Economics Economics is the study of rational choice under conditions of scarcity. Rational choice =People making calculated self interested decisions. Scarcity : the imbalance between the amount of something that people want and the amount that is freely available. Air=Scarce Space= scarce Garbage=not scarce Opportunity costs are what you give up when you make a rational choice. =Best alternative forgone when a choice is made Ex) you going to bed instead of going to economic class in the morning. satisfaction What economists Do 1. Ask questions Why all the gas station clustered in main corner of - ? why are there 3 different types of cereals? General -What should we produce? How will it be produced? Who is going to get it? Specific - what would happen if imposed a min. wage law on the labor market? 2. Craft Explanations-Maps -economic models illustrate the relationships between 2 or more variables
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3. Develop and test Hypotheses - an increase in consumer income will lead to an increase in consumer spending. - To isolate a particular variable’s influence, hold all other variables constant C=consumer spending Y=Consumer income T=Taxes C=f(y,-T,-Age)-> if we hold taxes and age constant , what is the relationship between consumer income and consumer spending? Prediction = holding all other variables constant, if we increase consumer income, consumer spending will also increase. Ceteris Paribus : all other things being equal In Business - help make forecasts about when to launch new products and enter foreign markets In Government = conduct research, collect data, devise plans to finance national debt, make decisions regarding implementation of new taxes In academia = teach, conduct research, publish and present reports of findings Normative VS. Positive economics Positive economics - is economics as a predictive, descriptive social science. It seeks to answer the questions (how will the world work?, what is prediction and description?) It answers specific questions in economics Ex) what will happened when a minimum wage law is imposed on the labor market? Normative economics (what is good? Best judgement)
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the question, “How should the world work?” It is about norms (standards of judgement) Ex) should we have a minimum age law at all?or is there a better way to deal some kind of tax policy-should we have tax on cigarettes? BEST POLICY Scientific method, Make recommendations Microeconomics : is about the decision-making process of individuals. House holds deciding whether to eat an apple or an orange, Firm deciding whether to install another computer or hire another worker Micro -is like the study of the cell, is the study of individual decision making. Way individual respond to changes in relative prices
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This note was uploaded on 06/07/2011 for the course ECONOMICS 101 taught by Professor Wilhour during the Summer '08 term at Parkland.

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Chapter 1 notes - Thinkwell chapter 1 notes

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