Chapter 2 - Economic theories, data and graphs Flashcards
Normative statement def
depends on value judgment, opinion. can’t be supported by facts
Positive statements def
Statements about what is, was or will be. Not biased by value judgments
Why economists disagree in public discussions
Poor communication or failure to acknowledge their ignorance.
Biggest source of public disagreement upon economists and what they should do
Positive/normative distinction. Should make difference between normative advice and positive facts
3 things theory consists of
1) Set of definitions about variables (endogenous and exogenous)
2) Set of assumptions (motives, causation, etc.)
3) Set of predictions (or hypotheses)
Endogenous variable def
Variable we want to study/explain/understand
Exogenous variable def
Other variables that influence the endogenous variable
Testing theories 2 things
1) Confronting predictions with evidence
2) Amend the theory if inconsistent with facts
2 things that can happen with theory
1) Rejected by data -> put into question
2) Confirmed by data (no matter how unlikely theory is, confirming data will be found)
Positive correlation meaning
X and Y move together
Negative correlation meaning
X and Y move in opposite directions
Correlation vs causality
Correlation -> association
Causality -> X causes Y
Reverse causality
X and Y related in a way that is opposite to what we expected
Branch of science used in economy
statistics
How data can be displayed (2)
Tables or graphs
What do we use if we are interested in relative movements of variables
index numbers
index number def
Compares changes in some variable relative to some base period
index formula
Value of index in given period = absolute value in given period/absolute value in base period x 100
Two forms in which economic variables come and def
Cross-sectional data (picture in time)
Time-series data (evolution in time)
Scatter diagram def
Points -> shows relationship between 2 variables
Scatter diagram interpretations (4) and what they mean
1) Strong correlation : strong relationship
2) Weak correlation : look for alternative factors with stronger relationships
3) No correlation : look for alternative relationship
4) J-shaped association : complex relationship
Functional relations 4 ways to express them
1) Verbal statement
2) Mathematical equation
3) Table (numerical schedule)
4) Graph
what do we say about variables when graph of relationship between 2 variables is a straight line
linearly related
what do we say about variables when graph of relationship between 2 variables is NOT a straight line
non-linearly related
4 types of linear relationships
1) Positive slope
2) Negative slope
3) Zero slope
4) Infinite slope
4 types of non-linear relationships
1) Positive slope
2) Negative slope
3) Positive then negative
4) Negative then positive
Linear or non-linear relationships : which is more common
non-linear
How to use the slope
Look for absolute value
What concept can the slope be associated with
marginal response (of Y to X)
