Economics as a Discipline

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Economics as a Discipline

• Lesson 1-2

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Economics

• The study of how people choose to use their
  limited resources to produce, distribute and
  consume goods and services.
• It explains how scarce resources are allocated
  among competing ends by the economic system.

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• Microeconomics The level of economic analysis
  that studies decision making undertaken by
  individuals (households), firms, and the
  government.
• Microeconomics examines the small parts of an
  economy through a microscope.

• Macroeconomics The level of economic analysis
  that studies the behavior of the economy as a
  whole.
• Macroeconomic examines aggregates of an economy
  such as employment rates, overall price levels
  and national income.

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Making decisions in Economics

• List six factors you are considering while making
  the decision of which college to attend.

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The Need for Abstraction

• Ceteris Paribus With all other factors or
  things being equal.
• Latin With other things equal. (Hold all
  other variables constant.)
• For example
  
  
  

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Theories and Models

• Economic Theory
  Simplification used to explain the relationship
  between two variables.
• Economic Models
  -Simplification of economic activity
  - representation of reality
  1. Equations
  2.
  Statements
  3. Graphs
  

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The Law of Demand

• Equation Q 24,000-500p
• Statement Ceteris Paribus, the quantity
  demanded of a good is greater at lower prices
  than at higher prices.
• Graph

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Methods of Economics

• Positive and Normative Economics
• Descriptive Economics
• Economic Theory
• Economic Policy

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Goals of Economics

• Description positive/descriptive
• Explanation positive/theory
• Prediction positive/theory
• Control normative/policy

• For example
• GDP
• Keynesian Theory of Consumption.
• An increase in G will increase GDP .
• Congress passes a tax break for capital spending.

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Reasons for Disagreements in Economic Theory

• Imperfect Information
  positive
• Theoretical disagreements
  positive
• Values and Goals
  normative