Professional Documents
Culture Documents
C H APT E R O U T LI N E
An Invitation
Appendix: How to Read and
Understand Graphs
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economics The study of how individuals and societies choose to use the
scarce resources that nature and previous generations have provided.
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Production
Prices
Income
Employment
Distribution of
income and
wealth
Employment by
individual
businesses and
industries
Wages in the
auto industry
Minimum wage
Executive
salaries
Poverty
Macroeconomics National
Aggregate price level National income
production/output
Total industrial
output
Gross domestic
product
Growth of output
Consumer prices
Producer prices
Rate of inflation
Employment and
unemployment in
the economy
Total number of jobs
Unemployment rate
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studies the potential failure of the market system to account fully for the
impacts of production and consumption on the environment and on natural
resource depletion. Have alternative public policies and new economic
institutions been effective in correcting these potential failures?
Finance
examines the ways in which households and firms actually pay for, or
finance, their purchases. It involves the study of capital markets (including
the stock and bond markets), futures and options, capital budgeting, and
asset valuation.
Health economics
analyzes the health care system and its players: government, insurers,
health care providers, and patients. It provides insight into the demand for
medical care, health insurance markets, cost-controlling insurance plans
(HMOs, PPOs, IPAs), government health care programs (Medicare and
Medicaid), variations in medical practice, medical malpractice, competition
versus regulation, and national health care reform.
The history of economic which is grounded in philosophy, studies the development of economic ideas
thought,
and theories over time, from Adam Smith in the eighteenth century to the
works of economists such as Thomas Malthus, Karl Marx, and John
Maynard Keynes. Because economic theory is constantly developing and
changing, studying the history of ideas helps give meaning to modern theory
and puts it in perspective.
Continued...
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Comparative economic
systems
examines the ways alternative economic systems function. What are the
advantages and disadvantages of different systems?
Econometrics
Economic development
Economic history
Continued...
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looks carefully at the structure and performance of industries and firms within
an economy. How do businesses compete? Who gains and who loses?
International economics studies trade flows among countries and international financial institutions.
What are the advantages and disadvantages for a country that allows its
citizens to buy and sell freely in world markets? Why is the dollar strong or
weak?
Labor economics
deals with the factors that determine wage rates, employment, and
unemployment. How do people decide whether to work, how much to work,
and at what kind of job? How have the roles of unions and management
changed in recent years?
analyzes the economic function of legal rules and institutions. How does the
law change the behavior of individuals and businesses? Do different liability
rules make accidents and injuries more or less likely? What are the
economic costs of crime?
Public economics
examines the role of government in the economy. What are the economic
functions of government, and what should they be? How should the
government finance the services that it provides? What kinds of government
programs should confront the problems of poverty, unemployment, and
pollution? What problems does government involvement create?
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Opportunity Cost
opportunity cost The best alternative that we forgo, or give up, when we
make a choice or a decision.
Opportunity costs arise because resources are scarce. Scarce means
limited. Resources are scarce because human wants exceed what we can
produce from our current resources.
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Marginalism
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E C O N O M I C S I N PR AC T I C E
iPod and the World
A sticker that says Made in China can
often be misleading.
Indeed, for the iPod, which is composed of
many small parts, it is almost impossible to
accurately tell exactly where each piece
was produced without pulling it apart.
From an economics point of view, one
often has to dig a little deeper to see what
is really going on.
THINKING PRACTICALLY
THINKING PRACTICALLY
1.What do you think accounts for where
1.What do you think accounts for where
components of the iPod are made?
components of the iPod are made?
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Some Examples
What determines the wage rate for unskilled workers?
--Positive economics
What would happen if we abolished the corporate income tax?
--Positive economics
Should the government regulate the wage rate?
--Normative economics
Should we abolish the corporate income tax?
--Normative economics
Descriptive economics: is the compilation of data that describe
phenomena and facts, e.g. ATUS, BLS
--Positive economics
Economic theory: attempts to generalize about data and interpret them,
e.g. law of demand
--Positive economics
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variable A measure that can change from time to time or from observation to
observation.
Ockhams razor The principle that irrelevant detail should be cut away.
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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.
Using the device of ceteris paribus is one part of the process of abstraction.
In formulating economic theory, the concept helps us simplify reality to focus
on the relationships that interest us.
This assumption is used to single out the effect attributed to a change in a
single variable.
Example - what would my grade have been if I studied one more hour, ceteris
paribus?
Factors to affect grades: class attendance, study time.
With CP, only grade and study time are discussed.
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We use both graphs and equations to capture the quantitative side of our
economic observations and predictions.
C=0.9Y or S=0.1Y
(Quantitative relationship between variables)
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Year
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
Total
Disposable
Personal
Income
1,187.3
1,302.3
1,435.0
1,607.3
1,790.8
2,002.7
2,237.1
2,412.7
2,599.8
2,891.5
3,079.3
3,258.8
3,435.3
3,726.3
3,991.4
4,254.0
4,444.9
4,736.7
4,921.6
Year
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Total
Disposable
Personal
Income
5,184.3
5,457.0
5,759.6
6,074.6
6,498.9
6,803.3
7,327.2
7,648.5
8,009.7
8,377.8
8,889.4
9,277.3
9,915.7
10,423.6
11,024.5
10,772.4
11,127.1
11,549.3
11,930.6
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post hoc, ergo propter hoc Literally, after this (in time), therefore because
of this.
A common error made in thinking about causation: If Event A happens before
Event B, it is not necessarily true that A caused B.
fallacy of composition The erroneous belief that what is true for a part is
necessarily true for the whole.
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Economic Policy
1.Efficiency
2.Equity
3.Growth
4. Stability
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Efficiency
Equity
equity Fairness.
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Growth
Stability
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R E V I E W TE R M S AN D C O N C E PTS
ceteris paribus, or all else equal
microeconomics
economic growth
model
economics
normative economics
efficiency
Ockhams razor
efficient market
opportunity cost
empirical economics
positive economics
equity
fallacy of composition
scarce
Industrial Revolution
stability
macroeconomics
variable
marginalism
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