ECO-2023 Lecture Notes - Lecture 1: Bacon, Economic Equilibrium, Inferior Good
Document Summary
Ceteris paribus all other things remaining constant. Methodological fallacy correlation does not imply causation. Correlation - the tendency for the values of two variables to move in a predictable and related way. Four possible explanations for any observed correlations: cause/effect relationship. Example: cities with more police have higher crime rates. The crime rate is higher because there are more officers to report crime: reverse causation event b causes the result of event a. More crimes (b) leads to more police (a: omitted variables some third event they haven"t showed you is causing event a and b. Example: size of the city bigger cities have more crime and police: spurious correlation coincidence police and crime are unrelated. A shortage can be eliminated by raising the price. Scarce resources are still scarce at any price, no matter how high or how low: scarcity necessitates choice.
