Lecture 1 Flashcards
What is an economic institution?
An economic institution is a convention developed by a society to help solve recurrent economic problems or sets of rules created to govern economic behavior.
Name two classifications of economic institutions with examples.
- Property rights: e.g., land tenure, intellectual property rights.
- Facilitating transactions: e.g., standard contract law, dispute arbitration.
What is an economic model?
A simplified representation of reality used to predict or explain economic behaviors.
Differentiate between theoretical and empirical economic models.
Theoretical models derive qualitative implications about behavior, while empirical models verify these predictions and provide numerical outcomes.
Give an example of a mathematical economic model.
Demand and supply models, e.g., Qd = 30 - 3P and Qs = 20 + 2P.
What is an analogy model in economics?
A model that uses an analogy to understand economic realities, such as viewing market competition as a game.
What is the role of economic institutions in economic development?
They help solve recurrent problems, regulate behavior, and create a framework for efficient economic activities.
Why are institutional arrangements not uniform across societies?
Different societies face unique challenges and solutions, leading to variations in institutional arrangements.
What is Hodgson’s (2001) definition of an institution?
A durable system of established and embedded social rules and conventions that structure social interactions.
What is the significance of optimization and equilibrium in economics?
Optimization ensures efficient allocation of resources, while equilibrium reflects a stable state where supply equals demand.
What are the components of a mathematical economic model?
Dependent variables, constants, and parameters that measure relationships, e.g., Qd = 30 - 3P.
How does game theory relate to economic institutions?
It helps explore strategic interactions and predict behaviors in competitive settings, like firms in a market.
