Chapter 1 Economics Defined

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

IV. Important Economic Disciplines
     
V. Sundry Materials    

Editors Notes
Math Review is a short review of basic dynamic math skills
for economics from R. Larry Reynolds of Boise State.
Current Political Economy Controversies
are are designed for class discussions.
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. Purposeful behavior by
participants (buyers and sellers) is exhibited
             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
             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
                     a. spending for the elderly (Social Security) increased 
                     b. spending for children (Head Start) decreased 1234

   II. 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. Three Pitfalls to model analysis 
                
a. Restrictive, unrealistic assumptions 
                
b. Omitted details  
                
c. Are economic models falsifiable?
            
3. 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
What is Behavioral Economics? 4.16 video
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
     
E.
The History of Economics 9.10 Adam Smith, David Ricardo, John Stuart Mill,
           William Stanley Jevons, Alfred Marshall and Lord John Maynard Keynes are
           considered. 

Chapter 1 Class  Discussion Questions

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Economizing Scarce Resources   

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