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Chapter 1
ECON202, Maclachlan
ECONOMY
From the Greek for one who manages a household. Key concept: scarcity.
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Definition
Economics: the study of how society manages its scarce resources.
Mankiw summarizes all of economics with 10 principles
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8. A countrys standard of living depends on its ability to produce goods and services.
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Economists as Advisors
Harry Truman said he wanted a one-armed economist.
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5. If the federal budget deficit is to be balanced, it should be done over the business cycle rather than yearly. (85%) 6. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%) 7. A large federal budget deficit has an adverse effect on the economy. (83%) 8. A minimum wage increases unemployment among young and unskilled workers. (79%)
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9. The government should restructure the welfare system along the lines of a negative income tax. (79%) 10. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)
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Scientific Methodology
The whole of science is nothing more than the refinement of everday thinking. --Albert Einstein
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Role of Assumptions
A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, "Lets smash the can open with a rock." The chemist says, "Lets build a fire and heat the can first." The economist says, "Lets assume that we have a can-opener... --Paul Samuelson
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