01_Overview - 1. OVERVIEW Intro to Macro (ECON 0110) Jochem...

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Unformatted text preview: 1. OVERVIEW Intro to Macro (ECON 0110) Jochem Overview b What is Economics? b Economics is a social science b Economics studies the behavior of agents (people, firms, institutions,…), their interaction with each other and how this leads to outcomes. s A study of society s Many areas: business, finance, government, crime, education, health, law, politics, religion, war, social institutions, … Overview b What is Economics? b Economic analysis typically involves a 4-step procedure: s Step 1: Observe some phenomenon s Step 2: Build a theory/model that predicts the observed outcome(s) s In particular, make some assumptions; then derive (often with math) some results with some (testable) hypothesis from the analysis. s Step 3: Collect data s Step 4: Test your model by testing your hypothesis Overview b What is Economics? b Economic analysis typically involves a 4-step procedure: s Step 1: Observe some phenomenon s Step 2: Build a theory/model that predicts the observed Important distinction: NORMATIVE VS. POSITIVE ECONOMICS Normative Economics: alue riven rguments/results. outcome(s) s In particular, make some assumptions; then derive (often with math) some results with some (testable) hypothesis from the analysis. s Step 3: Collect data s Step 4: Test your model by testing your hypothesis-- Value-driven arguments/results.-- Ex: “We should increase income taxes because it is unfair that the - rich have much more wealth than the poor.” Positive Economics:-- Fact-/Analysis-driven arguments/results.-- Ex: “It has been shown that Increasing the minimum wage does not - increase unemployment.” Overview b What is Economics? b Definition until 1970: s “ the study of scarcity” s The efficiency of market mechanism and comparison to t economic planning. sot economic planning. Overview b What is Economics? b Definition until 1970: s “ the study of scarcity” s The efficiency of market mechanism and comparison to t economic planning. sot economic planning. b Definition since 1970: s “ the study of decision-making, incentives & institutions ” s Change came with paper by George Akerlof* which pointed out how markets can fail; research then shifted towards the sources of markets failures and how policy- making can be used to prevent this from happening. s Akerlof won a Nobel prize for this. *Akerlof, “The Market for Lemons: Quality Uncertainty and the Market Mechanism”, QJE 1970 b Our first Economic model s George Akerlof (QJE,1970) “The Market for Lemons: Quality Uncertainty & the Market Mechanism” Overview s Akerlof uses the market for used cars as an example to show how asymmetric information between seller & buyer is enough to lead to a market break- down....
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This note was uploaded on 03/26/2012 for the course ECON 0100 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.

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01_Overview - 1. OVERVIEW Intro to Macro (ECON 0110) Jochem...

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