Professional Documents
Culture Documents
Natural Sciences
1
Positive Vs. Normative Econ.
Positive Economics
Statements of fact & logical deductions
Ex: If it rains the football field will get wet.
Normative Economics
Statements about what should be (value
judgments)
Example: The football field is better when it
is wet. 2
Economic Variable
An economic variable is an economic item
of interest that can be defined and measured
and takes on different possible values
3
Endogenous Vs. Exogenous Variables
Endogenous Variables
An endogenous variable is a variable that is
explained by the theory. It is also called a
dependent or response variable.
Exogenous Variable
An exogenous variable influences
endogenous variables but is itself
determined by factors outside the theory. It
is also called an independent or causal
variable. 4
Own Price $ Sales # of cans Plotting Pepsi Sales
(Independent (Dependent
variable) variable) 11
10
10 0 9
8
9 1 7
Price
8 2 6
5
7 3 4
6 4 3
2
5 5 1
0
4 6 0 1 2 3 4 5 6 7 8
3 7 Sales
5
Own Price Relative
Competitors Advertising
Price
Pepsi
Sales
6
Y2 - Y1
Slope = Plotting Pepsi Sales
X2 - X1
11
10
9
8
Intercept: 7
Price
6
5
y-intercept 4
3
y value when x=0 2
1
0
0 1 2 3 4 5 6 7 8
x-intercept: Sales
x-value when y =0
7
Equation of a straight line
Plotting Pepsi Sales
y = m x+c 11
10
9
8
7
Price
6
y= Vertical variable 5
4
x= Horizontal 3
2
1
Variable 0
0 1 2 3 4 5 6 7 8
m = Slope Sales
c= y-intercept
8
Relationships between Endogenous &
Exogenous Variables
9
Relationships between Endogenous &
Exogenous Variables
10
Relationships between Endogenous &
Exogenous Variables
Unrelated Variables
Two variables are said to be unrelated when
a change in the value of one variable does
not affect the level of the other variable.
11
Movements along Vs. a Shift of the line
12
Movement ALong Vs. Shift of Line
Own Price $ Sales # of Sales # of cans
(Independent cans (Dependent 11
variable) (Dependent variable) 10
variable) AD = A2 9
AD = A1 8 Sales (A2)
7
10 0 1
Price
6
Sales (A1)
9 1 2 5
4
8 2 3 3
7 3 4 2
1
6 4 5 0
5 5 6 0 1 2 3 4 5 6 7 8 9
4 6 7 Sales
3 7 8
13