economic methodology Flashcards
what is a positive statement
a statement that is based on facts that can be proven
example of a positive statement
paying your workers more will decrease production and shift supply to the left
what is a normative statement
the statement is based on that persons beliefs / opinion
example of a normative statement
taxes should be lower ( this statement isn’t backed up they are just expressing their opinion)
why do we use math in econ
it allows us to create meaningful testable equations that represent complex subjects in the real world
how to find the slope
change in y over the change in x if the line is going down then make sure the number is negative
absolute increase
this is the face value increase of for example income raises form 40 to 80 the absolute increase is 40 dollars
relative increase
this is when we look past face value for example income goes from 20 to 60 dollars the realative increase will be that the income tripled
comparing absolute increase
the only way you can compare it is if they are the same unit or the same price
comparing relative increase
you can compare stuff relatively no matter how different the stuff is (can be different units)
what is a index
the absolute value divided by the absolute value in base period multiplied by 100
what is a linear function
functions in the form of y= mx + b linear functions have a constant slope
what is a nonlinear function
functions with slopes that arent constant the line curves up or down
maximum of a function
the highest point of the function
minimum of a function
the lowest point of the function
relative maximum
in the radius of that point it seems to be the highest point
relative minimum
in the radius of that point it seems to be the lowest point
time series plot
its a collection of values of the same variable measured at different periods of time. time is on the x axis and the values of the variable is on the y axis
seasonal fluctuations
changes that consistently occur a certain periods of time
trend
the overall average direction of change of the graph
cyclical fluctuations
random periods of rapid expansion or contractions like bull runs and market crashes
endogenous
the thing that exogenous stuff has a effect on for example corn is endogenous because its production is dependent on the endogenous variable in the model
exogenous
this is the thing that effects the endogenous variable outside the model
Economists build models that abstract from the complexities of reality because
they believe they gain a greater understanding of reality.
if a model is made and after trying it the data is in conflict with the theory they should
modify the theory in light of this newly acquired empirical knowledge.
examples of endogenous variable
anything that is produced or made ie plants, cows, corn etc. baiscally stuff that shifts the demand curve and supply curve
example of exogenous
anything that effects production eg weather, earthquake, etc
what is a theory
a explanation to predict what we are observing
what describes the relationship of positive and normative statements
normative statements evaluate desirability and opinion positive doesn’t it evaluates facts
When studying economic data, and when comparing the magnitude of changes in variables with different scales it is best to
express each variable as an index number.
