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ECON 20A (171)
Shan, H. (18)
Lecture 2

ECON 20A Lecture 2: Thinking Like An Economist

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Shan, H.

Econ 20A Lecture 2 Chapter 2: Thinking like an economist Principles of Economics How People Interact? Principles 6 Markets are a good way to organize economic activity Decentralized Markets let people trade with each other Market doesnt have control over it Ex ( from above): trading will benefit both Invisible hand (Adam Smith) No one is making the decision itself The interaction of buyers and sellers determines prices. Each price reflects the goods value to buyers and the cost of producing the good Principle 7: Governments Can Sometimes Improve Outcomes in Market Enforcing property right Giving people the right of ownership Market failure Need government to avoid the failure Causes of failure reduce efficiency in production Externality: shoe company makes shoes and sells it, but it also creates an pollution that will affect everyone Need to government to avoid this Market power: an unique company raises the price to extreme since its unique Need to government to adjust the price Promote equity Ex: welfare programs to support in needed citizens Chapter 2: Thinking like an economist Ceteris Paribus Other Things Being Equal (COTBE) Trying to understand what happened if one changes Positive Analysis Vs. Normative Analysis positive analysis Fact, data, statistic Ex: Unemployment rate is 7 which is the fact Normative analysis judgement Make policy based on believe Ex: Should the government provide health care for unemployment citizen or not? Some economists will say yes; some will say no Ex: Professor said it is 74 degree according to the weather data (positive analysis) and some students said its too hot (Normative analysis)
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