ECO304K - ECO304K READINGS Today p.1-15 18-22 Friday 21-41...

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ECO304K 8/26/09 READINGS Today: p.1-15 18-22 Friday: 21-41 There will be classes Oct. 16 and Nov 25 NOTES Economics: the study of how individuals and societies CHOOSE to use the SCARCE resources that nature and previous generations have provided Scarce: Total quantity of a good is less than people would choose if the good was free Economics is what economist do Economics as method rather than subject 3 fundamental concepts: Opportunity Cost, Marginalism, Efficient Markets 8/28/09 Opportunity cost : The best alternative that we forgo, or give up, when we make a choice or a decision. Note: this is why for a lot of economics there is no such thing a “free stuff” Marginalism : The process of analyzing the additional or incremental cost or benefits arising from a choice or decision. Sunk Cost : Cost that cannot be avoided, regardless of what is done in the future, because they have already been incurred. Efficient market : a market in which profit opportunities are eliminated almost instantaneously If there is a “good deal” somewhere, people will act on it and it won’t be a “good deal” for long. Microeconomics : The branch of economics that examines the functioning of individual industries and the behavior of individual decision –making units—that is, business firms and households Macroeconomics : The branch of economics that examines the economic behavior Positive economics : an approach is economics that seeks to understand behavior and the operations of systems without making judgments. It describes what exist and how it works. Normative economics : an approach to economics that analyzes outcomes of economics behavior, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics Sometimes decide normative questions with a positive criteria Descriptive economics : the compilation of data that describes phenomena and facts. Not trying to explain why it’s happening. Economic theory : a statement or set of related statements about cause and effect, action and reaction. Explaining why it’s happening. Model : A formal statement of a theory usually a mathematical statement of a presumed relationship between two or more variables. Many models in this class presented as graph Variable : A measure that can change from time to time or from observation to observation. Ockham’s razor : The principle that irrelevant detail should be out away. Most economic models criticized as “unrealistic”
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Trying to focus on important variables Leaving out variables that exist, but are not a part of analysis. Ceteris paribus : or all else equal. A device used to analyze the relationship between two variables while the values of other variables are held unchanged. Expressing models in words, graphs, and equations: the most common method of
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ECO304K - ECO304K READINGS Today p.1-15 18-22 Friday 21-41...

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