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Topic 1 - Introduction.docx

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Economics 1021A/B
Arvin Dar

Topic One; Introduction 1. Some basic concepts o What is economics o Micro versus macro economics o Positive versus normative economics o Notion of ceteris paribus 2. Mathematical review o Equation of a straight line and slopes o Relationships o Functions o Calculating % changes 3. Scarcity, Choice & Opportunity Cost o Illustrating concepts using a PPF o Shifts in a PPF o The consumption possibility frontier 1. Basic Concepts 1.1What is economics?  The study of individuals in their everyday business of life.  The study of the use of scarce resources to satisfy our unlimited wants. 1.2 Micro economics vs. Macro  Micro o Small sectors, studies behaviour in these small components of the economy. o Study of consumers, individuals firms, small parts of the economy being looked at under a microscope  Macro o Broad aggregate o How is the economy’s balance of payments, income, etc. 1.3 Positive versus normative  Positive o The study of what is o Use data to see whether a statement is true or false  Statement: If taxes on beer increase, consumption of beer will decrease.  Question: Do higher taxes on beer reduce its consumption. o There is no value judgement – just gather data on consumption before and after taxes.  Normative o The study of what should/ought to be o You cannot test the validity of the statement  Statement: The government should tax the rich more.  Question: Should the government tax the rich more?  The answer depends on who you ask – a rich person may have a different answer than a poor person. 1.4 Notion of Ceteris Paribus  Loosely translated: “All other things remaining the same”  Example: Advertising ↑ and as a consequence Sales ↑ o That statement only holds true only if you assume ceteris paribus 2. Mathematical Review 2.1 Equation of a straight line & slopes  Straight line: o Y = c + m ∙ x  c = intercept on the vertical axis  m = slope  y = 8 – 4 (x)  0 = 8 – 4 (2)  Slopes o If you have a curved line, the slope is not a constant value o You can figure out the curve at certain points, but not overall 2.2 Relationships  Where the slope is positive we say there is a positive or direct association between y and x. o As x increases, y increases. As x decreases, y decreases.  Where the slope is negative we say there is a negative or inverse association between y and x. o As x increases, y decreases. As x decreases, y increases.  Straight vertical line: o one point on x is associates to many points on y so there is no association o Slope = plus or minus infinity  Straight horizontal line: o one point on y is associates to many points on x so there is no association o Slope = 0 2.3 Functions  General function o Y = f (x)  Y is a function of x  (x)  argument of the function  Y = f (x, z, w)
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