Econ Class Notes 8/26/13 - Introduction to Economics.pdf

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ECON 203
Richard Coe

Econ Class Notes 8/26 - economics - study of choices made by people in the presence of scarcity. - Limited resources with unlimited wants and needs. - Economics is largely about the choices people make given the constraints they face. - microeconomics - unit of analysis is the individual or firm. Looking at one person’s behavior, one firm’s choice, do you have a job, the price of something. “We look at the trees”. - macroeconomics - considers economy wide aggregates. Looks at overall unemployment rates, level of output for the economy price levels, etc. “We look at the forrest”. - Economic models are simplified representations of the world. - Economics is a social science, it attempts to explain people’s behavior. - Economists try to learn about the world by using models - making assumptions, developing a model, testing the model statistically to determine whether or not the model predicts accurately. - All social sciences use models, models can be graphical, mathematical, or verbal. - Desirable characteristics of economic models: 1) Simple - easy to understand. 2) General - apply to a number of situations. 3) Useful - accurately predict observed behavior. - An acceptable model needs to generate predicted outcomes accurately. - We’ll judge a model on how well it predicts behavior, not how realistisc the assumptions are. - If a model predicts behavior well, it’s a good one. Keep the model until you find a model that does a better job. - We make assumptions. Economists assume people are rational. People do the best they can based on their own values and information, under the circumstances that they fac
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