The Scope and method of economics Flashcards
Economics in a large measure ?
How people make choices !
The best alternative that we give up when we make a choice or a decision ?
The opportunity cost
Resources are ?
Scarce !
Cost that cannot be avoided ?
Sunk costs !
They have already been incurred.
Marginal cost ?
Cost of producing one more unit of output.
An efficient market ?
A market in which profit opportunities are eliminated almost instantaneously
The industrial Revolution ?
Took place in England, late 18th and nearly 19th centuries.
What had been observed in the IndRevolution ?
Increases in productivity of Agriculture, new manufacting technologies, dvpmt of transportation.
–> Massive movement of the british pop from the countryside to the city
Differences between Micro and Macro economics ?
Micro looks at the individual unit = Household, firm, industry. –> The trees
Macro looks at the whole. —> The forest
Positive economics ?
Understand the behavior and the operation of economic systems without making judgements about the outcomes.
It strives to describe what exists and how it works.
Normative economics ?
Look at the outcomes of economic behavior and asks whether they are good or bad and whether they can be made better.
Involve judgements and prescriptions.
Descriptive economics ?
The compilation of data that describe phenomena and facts
Economic theory
A statement, set of related statements about cause and effect, action and reaction.
A model ?
Formal statement of a theory.
Usually a mathematical statement of a presumed relationship between two or more variables.
A variable ?
A measure that can change from time to time or from observation to observation.
Ockham’s Razor ?
A principle that an irrelevant detail should be cut away in order to establish a theory.
Ceteris Paribus, or, All else equal ?
Used to analyse the relationship between two variables while the values of other variables are held unchanged.
This concept help us simplify reality to focus on the relationships that interest us.
The Post hoc, Ergo propter hoc ?
Literally, “After this (in time), therefore because of this.”
Common error made in thinking about causation: If event A happens before event B, it’s not necessarily true that A caused B.
The fallacy of composition ?
Erroneous belief that what is true for a part is necessarily true for the whole.
Empirical economics
Consists in collecting and using data to test economic theories.
Which criteria are used to judge economic outcomes ?
- Efficiency
- Equity
- Growth
- Stability
Efficiency ?
In Eco, efficiency means allocative efficiency. An efficient economy is one that produces what people want at the least possible cost.
Equity ?
Equity, fairness, lies in the eye of the beholder
Growth ?
An increase in the total output of an economy
Stability ?
Output is steady or growing, with low inflation and full employment of resources.
