ECON 040 Lecture Notes - Lecture 2: Bounded Rationality, Price System, Planned Economy
4 Oct 2020
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Document Summary
Centralized command and control (central planning): authority that makes all economic decisions. Price system (market system): decisions are collectively made by consumers and producers in response to the change of prices. In market economy: indivisible hands , dollar votes . Economics as a science: uses models to explain economic phenomena in the real world. Simplified representations of the real world used as the basis for predictions or explanations. Should capture only the essential relationships that are sufficient to analyze a problem. Cannot be faulted as unrealistic simply because they do not capture all details of the real world. The set of circumstances in which a model is applicable. Nothing changes except the factor or factors being studied. Hypothesis that people are nearly, not fully, rational. They cannot examine every choice available to them. They appear to use rules of thumb to sort alternatives. Purely descriptive statements or scientific predictions, such as: if.
