ECON 002 Lecture 1: 2

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Department
Economics
Course
ECON 002
Professor
Mc Laren Craig
Semester
Spring

Description
Positive vs. Normative Economics Positive economics: the scientific study of what is (testable) Normative economics: judgments about what people think ought to be (not testable) 4 Pitfalls to Avoid in Economic Thinking 1. Violation of the ceteris paribus principle a. Ceteris paribus: other things constant 2. The false belief that good intentions guarantee desirable outcomes 3. The false belief that association is causation 4. Fallacy of composition: the fallacious belief that what is true for one is true for all Microeconomics vs. Macroeconomics Microeconomics: focuses on how human behavior affects the conduct of affairs within individually defined units such as households or firms (the trees) Macroeconomics: focuses on how human behavior affects outcomes in highly aggregated markets such as the nations market for labor (the forest) Chapter 2: Economic Tools How Trade Creates Value Because the value of goods is subjective, trade creates value (as long as its voluntary) o When individuals engage in voluntary exchange, both parties are made better off o Channeling goods and resources to those who value them most increases the wealth created by a societys resources Creation of Wealth The process by which some people become rich will make everybody richer as long as it happens through voluntary exchange Importance of Property Rights Private property rights involve: 1. The right to exclusive use of the property 2. Legal protection against invasion from other individuals 3. The right to sell, transfer, exchange, or mortgage the property 4 Incentives of Property Rights 1. Incentive to use resources in ways that are considered beneficial to others a. Owners bear the cost of ignoring the wishes of others 2. Private owners have an incentive to care for and manage what they own a. i.e. communal refrigerator vs. your own refrigerator 3. Private owners have an incentive to conserve for the future 4. Private owners have an incentive to make sure their property does not damage your property Property Rights and Development Lack of property rights= lack of economic progress Production Possibilities Curve (PPC) PPC: outlines all possible combinations of total output that could be produced, assuming a: 1. Fixed amount of productive resources 2. Given amount of technical knowledge
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