ECON 101 Lecture Notes - Lecture 2: Ceteris Paribus, Economic Surplus, Demand Curve

• School: U of M
• Department: Economics
• Course: ECON 101
• Professor: Ronald C Caldwell

Document Summary

Basic approach to econ: generate an intuitive theory about how individuals behave, use the theory to build a formal model that allows for testable predictions to be made. Describes relationship btw variables: empirically test the model to determine if real world observations support predictions. Can never prove a model is correct can only. Building a model: model: simplified rep of real situation that"s used to better understand real- life situations. Simplified bc real world is too complex to consider everything at once. Use a more complicated model only if benefits of added understanding. Use simplified model: ultimately want to establish causal relationship btw variables. What does model demonstrate: provides prediction on what is likely to happen if certain actions are taken. Positive econ: what is likely to occur, objective, testable predictions, doesn"t tell us what we should do normative econ. Supply and demand model: postulates of human behavior.