The Economic Way of Thinking - PowerPoint PPT Presentation

Loading...

PPT – The Economic Way of Thinking PowerPoint presentation | free to download - id: 593cc0-YmYzY



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

The Economic Way of Thinking

Description:

Title: The Economic Way of Thinking Author: Economics & Decision Systems Last modified by: Chris Brown Created Date: 5/19/1998 8:07:48 PM Document presentation format – PowerPoint PPT presentation

Number of Views:50
Avg rating:3.0/5.0
Slides: 34
Provided by: Econ188
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: The Economic Way of Thinking


1
ECON 2313 Fall semester, 2005
Welcome to Principles of Macroeconomics
2
What is economics?
Economics is the study of how individuals
and societies allocate scarce resources
among competing alternative ends
3
Hall and Lieberman definition
Economics is the study of choice under conditions
of scarcity
4
Scarcity
Available resources are insufficient to
satisfy wants.
We cannot produce enough goods and services to
satisfy everyonewe dont have the resources!
5
The genealogy of economics
Economics   Websters Ninth New Collegiate
Dictionary.   eco nom ic 1. archaic of or
relating to a household or its management.   eco
oikos, meaning house or household   nom
nemein, meaning to manage   ic ic, mean of
or relating to
6
Economics is the social science that studies the
choices we make as we cope with scarcity and the
incentives that influence and reconcile our
choices.

7
Incentive
A reward or penaltya carrot or a
stickthat encourages or discourages an action.
The risk of a getting a ticket for speeding gives
you an incentive to obey they speed limitor at
least slow down.
Time-of-day variability of phone rates give you
an incentive to phone at night.
8
Economic Resources
Resources are the tangible things that make the
production and distribution of goods and services
possible.
9
Economic Resources by Category
  • Land
  • Labor
  • Capital
  • Entrepreneurship

10
Land or natural resources
Free gifts of nature
11
Labor or Human Resources
12
Capital
Manmade instruments of production.
13
Types of capital
  • Private, tangible capital Examples Aircraft and
    trucks used by Federal Express Nuclear Plants
    owned by Entergy Plants owned by Case
    Equipment Co.
  • Public, tangible capital or infrastructure Examp
    les Bridges and viaducts Water collection and
    filtration systems navigable waterways Mass
    transit systems Airports.
  • Human capital, defined as the skills and
    training of the labor force. Examples Network
    engineers and webmasters Plumbers Accountants
    Chemists Machinists Nurses Pilots.

14
Entrepreneurship
Entrepreneurship is the willingness and
ability to combine land, labor and capital into
productive enterprises.
  • Entrepreneurs identify profitable business
    opportunities and mobilize and coordinate
    resources to take advantage.
  • Sam Walton, Michael Dell, Martha Stewart, and
    Bill Gates are examples of highly successful
    entrepreneurs.

15
The World of Economics
  • Microeconomics
  • Macroeconomics
  • Positive economics
  • Normative economics

16
Microeconomics
  • The study of the choices that individuals and
    businesses make and the way these choices respond
    to incentives, interact, and are influenced by
    government
  • Examples of microeconomic questions?
  • What determines the price of gasoline?
  • Why is housing so much more expensive in San
    Francisco compared to Dallas?
  • Will more students enroll in nursing schools in
    response to rising incomes of nurses?
  • Will the free availability of Linux affect
    sales of Windows?

17
Macroeconomics
  • The study of the aggregate (or total) effects on
    the national economy and the global economy of
    the choices that individuals, businesses, and
    governments make.

18
Macroeconomic Questions
  • What determines the value of total spending and
    output?
  • What are the determinants of total employment?
  • What are the determinants of personal income?
  • What are the determinants of the cost of living
  • What causes economic fluctuationsrecessions and
    expansions

19
The Business Cycle
Real GDP
Time
  • The term business cycle is used to describe
    observed fluctuations in key macroeconomic
    measures such as real GDP, personal income,
    profits, or employment.
  • A full cycle consists of an expansion and a
    contraction (or recession).
  • Business cycles are recurring phenomena however,
    they are irregularly recurring.

20
Business Cycle Phases and Turning Points
Total Production
Peak
Expansion
Peak
Expansion
Recession
Recession
Trough
Year
2
4
8
21
Positive and Normative Economics
Economics deals with questions of what is and
what ought to be. The former set of questions
belong to positive economics the latter to
normative economics
22
  • Positive economics attempts set forth scientific
    statements --that is, statements subject to
    verification or falsification For instance
    If they raise tuition again at ASU, enrollment
    will decline.
  • The recent increase in interest rates should
    depress housing construction.
  • Total employment in the U.S. fell in 2002.


23
The Bush tax plan is tilted excessively to the
rich
24
Now wait a minute! The rich pay higher taxes
to begin with. Shouldnt they receive a bigger
tax cut?
25
Who is right? It is a normative issue.
26
A model is a simplified version of
economic reality. Models abstract from
key features of the real world. A model should
be as simple as possible to accomplish its
purpose.
27
This map of Latvia is a good example of a model
28
Assumptions and Other Conclusions
Simplifying assumption makes a model simpler
without affecting its important
conclusions Critical assumption affects the
conclusions of a model in a critical way
29
Ceteris Paribus
All other things being equal or All other
factors held constant.
Simplification in model building is achieved by
the ceteris paribus assumption. It allows us to
reason about the relationship between two
variables without the intrusion of other
variables.
30
Correlation versus Causation
Correlation is the tendency for the values of two
variables to move in a predictable and related
way. For example, beer consumption tends to rise
when unemployment risesthat is, these variables
are correlated. Does it follow that beer
consumption causes unemployment?
31
Other examples
  • Researchers at the Aabo Akademi found that Finns
    who speak the language of their Nordic neighbors
    were up to 25 percent less likely to fall ill
    than those who do not.
  • My rooster diedthe sun wont come up tomorrow.
  • Crimes rates tend to be higher in cities with
    more police per capita.

32
I washed my spaceship today, and thats why it
rained
Youve committed the post hoc fallacy!
Post hoc, ergo propter hoc
Meaning
After this, therefore because of this.
33
The fallacy of composition
  • To commit the fallacy of composition is to
    suppose that what is true in the individual case
    also holds true for the group.
  • Example The best way to leave a burning theater
    is to run for the exit.
About PowerShow.com