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Econ 4.3
Wednesday
January 13
1999
Announcements: Read
Chapter 2 by Friday
1/15/98. All class announcements will be
made on the website. Complete problem #5 in Chapter 1 for Friday.
Lecture notes:
Chapter 1
Scope and Method of Economics
- Economics is the
study of how individuals and societies choose to use the
scarce resources that nature and previous generations
provided.
- How do you use society's
scarce resources in such a way to make people best off?
- The most important cost
concept is opportunity cost
- Opportunity cost is
what is given up when we make a choice or
decision
- Everything you do has
an opportunity cost
- Economics is everywhere
- Resources are scarce
and the decision on what to use is weighed when
we consider extra benefits versus extra costs
- Economics doesn't
prove theories
- Economics develops
analytic models
- Only a theory can
establish cause and effect
- There are two major
divisions of economics
- Microeconomics:
the branch of economics that examnies the
functioning of individual industries and
behavior of individual business firms
and households
- Macroeconomics:
The branch of economics that examines the
economic behavior of aggregates---income
employment
output
and so on-- on a
national scale. Macroeconomics takes
segments of Microeconomics and puts them
together
- The Post Hoc Fallacy
(ergo propter hoc): A common error made in
thinking about causation: If event A happens before event
B
it is not neccessarily true that A caused B.
- Fallacy of
composition: The false belief that what is good
for me
has to be good for everyone else
- Paradox of saving:
save more
become thrifty
save less -- this has adverse
effects -- others lose jobs
Methadology
- Can the facts speak for
themselves?
Concepts
- Sunk Costs:
costs that cannot be avoided
regardless of what is done
in the future
because they have already been incurred
- Marginal Utitilty:
extra benefits
extra units of satisfaction
- Marginal
Cost/Opportunity Cost: extra costs of doing
activity. If you do not have net positive marginal
benefits you are not better off
- Ceteris Paribus
or
All Else Equal: a device used to analyze
relationship between two variables while the values of
other variables are held unchanged
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