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

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

Document Summary

Basic approach to economics: generate an intuitive theory about how individuals behave, use the theory to build a formal model that allows for testable predictions to be made. Models describe relationships between variables: empirically test the model to determine if predictions are supported by real world observation. Can never prove a model is correct, only provide evidence that supports the model. Building a model: model: simplified representation of a real situation that is used to better understand real-life situations. Use simplified models because real world is too complex to consider everything at once. Key is to determine which details are most important or of particular interest and focus on these. Use a more complicated model only if benefits of added understanding exceed the added costs of complexity. Other things held constant assumption: ultimately, would like to establish causal relationship between variables, ceteris paribus: all other things held constant.