Chapter 1 Economics Defined
Test Review Notes Chapters 1-7
Return to Economics Internet Library     2/28/19     Please link to, use to educate, Share!   

Math Review R. L. Reynolds, Boise State

Macro Review 11 min comprehensive video

I. Basic Terms
       A. Economy is the social science concerned with the use of
           scarce resources like land and labor to fulfill unlimited human.
       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. Purposeful behavior by participants (buyers and sellers) is exhibited
              to enhance their own rational self interest.
              See Economics in the dock 6 min video
          3. Marginal analysis where the change in benefit received is balanced
              with the change in cost is a common purposeful behavior.
              See Margins and Thinking at the Margin
          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. See
              Why Do People Continue to Believe Stupid Economic Ideas -
              Mark Blyth 5 min video
          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.
          8. Logical fallacyis a pattern of reasoning rendered invalid by a flaw
              in its logical structure that can neatly be expressed in a standard
              logic system
     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
             d. A Theorem on the Methodology of  Positive Economics
         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 spending for the elderly (Social Security) increased 
                     and spending for children (Head Start) decreased 1234
         4. Using Statistics
             1. Why Do Economists Use Statistics?
             2. Common Errors interpreting Statistics
             3. Beginning with video 3 the series, statistics
                 are used in a questionable manner to analyze
                 to current economic issues of concern to Libertarians.

Unit I. Review Economics, Resources, Scarcity, Rational Self Interest,
Marginal Analysis, Fallacy of Composition Fallacy of Division,
Post Hoc Fallacy, Cum Hoc Fallacy

Economic Models
       A. Definition
           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
       B. Designing Models
           1. Models may be quantities or qualitative
           2. Economic Models 3 minute video
           3. Three Pitfalls to model analysis 
               a. Restrictive, unrealistic assumptions 
               b. Omitted details  
               c. Are economic models falsifiable?
          4. Model representations are not always correct
               a. Are economic models falsifiable?
               b. Pfleiderer on The Misuse of Economic Models 1 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
               e. Why Do People Continue To Believe Stupid Economic Ideas?  4/17 Mark Blyth
               g. Economics Rules: the rights and wrongs of the dismal science
               h. Economists And Statistical Tests Are Bias 4/3/18

Politics or Political Economy
 is a battle between Positive Economics and Normative economics which ends with economic policy. Opinions on political economy questions like those depicted here and by
2016 Election Issues in One-Page.

Theory Notes Only
1-2 pages per chapter
No Internet Links, Pictures

Macro   Ch 1-7    Ch 8 -13    Ch 14-18