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Lecture 2 - Lecture 2 1 Pitfalls 2 Econ obj 3 Mercantalism...

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Lecture 2 January 12, 2010 1. Pitfalls 2. Econ obj. 3. Mercantalism a. Three fundamental principles and how to refute them 4. PPF 5. Comp Adv. 6. Econ sys 7. D&S (Demand & Supply) Pitfalls = common mistakes Absolute vs relative Price of big mac $200, too high compared to real world $200 is an absolute price, but a whopper is $500 and people make $5mil in a week It’s not absolute that matters, it’s relative that matters David Ricarto 1. Pitfalls 1. Ceteris Paribus – everything else equal (ralph’s put oranges on sale to get customers to buy more), based on law of demand However, if ralph’s put oranges on sale but less people bought oranges because of severe rain This does not violate ceteris paribus condition because it does not apply to this situation 1. Post Hoc Fallacy – Fallacy of causality If A happened and then B happened, we normally think that A caused B through assumption There may be a C that happened that caused A or B There is also a reverse causality
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