ECON1020 Lecture Notes - Lecture 2: Inferior Good, Ceteris Paribus, Technological Change
Lecture 2 - Foundation of Econ
Thursday, 1 March 2018
2:00 PM
<<ECON 1020 Lecture 2.pdf>>
• Economic theories have 3 key ingredients
o Assumptions
o Logic
o Conclusions
• Theoretical conclusions are always conditional on the assumptions that have been made
• Key assumptions in standard economic theories
o Individuals are rational and act in ways to maximise their wellbeing
o We live in a world of scarcity
• Economic data is not as good as we'd like due to limited ability to run experiments
• All we have is historical data which is unique
• Statistical techniques involve taking samples of data to:
o Test hypotheses
o Estimate values of parameters
• The application of statistical techniques to economic data is called 'econometrics'
• Distinctions in economic analysis
o Positive vs Normative analysis
• Positive concerned with statements about how the world is
• Normative analysis is statements about how the world should be
o Centrally planned economies vs market economies
• In a centrally planned economy, decisions are made by a centralised
bureaucracy
• In a market economy, decisions are made in a decentralised way by individual
firms, workers, and consumers, coordinated by markets
• Most economies these days is a mix
o Efficiency vs Equity
• An efficient allocation is one in which we are not wasting anything
▪ Productive efficiency
• When a good or service is produced with minimal resources
▪ Allocative Efficiency
• When choice of how much to produce reflects consumer
preferences
• An equitable allocation is one in which everyone gets a fair share
o Correlation vs Causation
• Correlation does not imply correlation
• 3 key concepts used in economics
o PPC
o Opportunity cost
o Demand and supply
• Bowed out shape of PPC represents the concept of increasing marginal opportunity costs
o The more resources already devoted to an activity, the smaller the payoff to
devoting additional resources to that activity
• Economic growth is the expansion of a society's production potential
• Demand
o How much of a product consumers are willing to purchase
o Quantity demanded is the amount of a good or service a consumer is willing and
able to buy at a given price
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