Chapter 1 Economics Defined

I. Basic Terms
           II.  Economic Models     III. Economic goals of the United States

IV. Important Economic Disciplines     V. Sundry Materials     Macro Reviews Test 1    Micro Reviews  Test 1 

 Sites of Interest

2015 Political Controversies 
examine poverty, middle class stagnation, politics and capitalism. 

Free Economic Books

Political Economy 
Book Summaries
 
are concise with
 links to relevant topics.

Library of Economics and Liberty

Ayn Randlexicon

Mises Institute

Roubini Global Economics

Brad DeLong’s Semi-Daily Journal

Top 100 Economics Blogs

Podcasts

NPR’s Planet Money

Video and Audio Lectures
 London Sch. Econ.

Econtalk

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Editors Notes
   
A. 
Math Review is a short review of basic dynamic math skills for economics from R. Larry Reynolds of Boise State.
   
B.
Current Political Economy Controversies are areas for class discussions.
    C. This chapter contains 3 brief videos plus a one-hour podcast.     
Please 

 I. Basic Terms
    
A. Economics is the social science concerned with the use of scarce resources like land and labor
          to fulfill unlimited human wants.
     B. Resources are the inputs, want satisfaction is the output
     C. Key Concepts for understanding and analysis
         1. Scarcity of resources results in the need for choices by participants.
         2  Participants, buyers and sellers, exhibit purposeful behavior to enhance their own rational self interest.
         3. Marginal analysis where the change in benefit received is balanced with the change in cost is a common
             purposeful behavior.
         4. Fallacy of composition: applying to the whole that which is true for a part without adequate proof. 1 and 3
             are odd numbers, so four is odd number. 
This fallacy is the basis of police profiling.
         5.
Fallacy of division: This is the assumption that if something is true for the whole then it must be true
             for its parts. The absolutely worst abuse here involves inferring from an average that all elements are average.
         6. Post hoc fallacy: 
Assumption that correlation proves causation.  
            This is related to the concept in law of circumstantial evidence.
         7. Cum Hoc Fallacy :simultaneous correlations while post hoc refers to sequential correlations.
  
    D. Economic methodology 
         1. Positive economics 
             a. What something is 
             b. Objective, can be measured
             c. Example: measuring disposable personal income which is an individual's salary after taxes
         2. Normative economics
             a. What something ought to be 
             b. Subjective, difficult to measure 
             c. Requires value judgments by citizens, Political Action Committees (PAC's), politicians, economists, etc.
             d. Examples: should the minimum wage be increased, should defense spending increase and social 
                 spending be lowered
         3. Descriptive Economics
             a. Looking at the real-world to develop Economic Theory
             b. Economic Theory
                 1. Generalizations concerning economic behavior based upon real-world observations, empirical by nature
                 2. Economic theories are objective "positive economics"
                 3. Assumes behavior is rational and economic (self-serving)
                 4. Example: as the price of a product increases, consumers tend to buy less
             c. Economic Policy
                 1. Application of economic theory to solve economic problems
                 2. Economic policies are subjective, "normative economics".
                 3. How society makes economic choices such as in the 1980's when
                     a. spending for the elderly (Social Security) increased 
                     b. spending for children (Head Start) decreased 1234

   II.  Economic Models
        
1. Simplified generalizations to represent of real-world economic activity
        2. Requires Ceteris Paribus: Latin for holding other economic variables constant. See
Ceteris Paribus Trap
        3. Models may be quantities or qualitative  
        
4.
Three Pitfalls to model analysis 
           
a. 3.1 Restrictive, unrealistic assumptions 
           
b. 3.2 Omitted details  
           
c.  3.3 Are economic models falsifiable?
        5. Model representations are not always correct
            
a. Are economic models falsifiable?
           
b. Pfleiderer on The Misue of Economic Models one hour podcast

     
      c. Models such as the Production Possibility Curve chapter 2 and supply and demand, chapter 3,
                explained in the next chapter provide a simplified description of how some aspect of an economy works.
          
d. Beware-of-economic-textbooks
11/30/14
 

III. Economic goals of the United States
   
 A. Economic growth
     B. Full employment of all economic resources
     C. Price stability (low inflation)
     D. Positive balance of payments (international flow of dollars)
     E. Economic freedom
     F. Equitable distribution of income
    G. Economic security (if you have A through F, you have G)
   
H.
Economic Report of the President gives the President's view on achieving these goals.

IV. Important Economic Disciplines

 

Macroeconomics1
is the study of  total economic activity.

Microeconomics2 
 
is the study of individual segments of the economy.

Macro and Micro are Applied as Follows

Macro Activity Micro Activity Schools of Economic Thought and Methodology
1. Inflation rate 1. A product's price Econometricians
2. Economic growth 2. Pollution Behavioral Economists
3. Total employment 3. Poverty International Economics
4. The  business cycle 4. A competitive market Labor Economics
ACDC Introduction to Macro 1:38  What is Microeconomics 1:54 Public Economics
1  Wiki explanation is extensive, for now, 
 the first few paragraphs are sufficient.

2 Wiki explanation is extensive, for now, the first paragraph is sufficient.

Financial Economics

V. Sundry Materials
     
A. Economics Glossary from Amosweb
    
 B. Economics The Library of Economics and Liberty has a concise economics Encyclopedia at the 
          bottom of the page.
      C.
 Video Review 9.08 Video
     
D
. Outside Reading
           1. Is economics a science?  
           2. Economics is more like history than physics

Chapter 1 Class  Discussion Questions

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Chapter 1 Homework Questions

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