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
- macroeconomics - considers economy wide aggregates. Looks at overall
unemployment rates, level of output for the economy price levels, etc. “We look at the
- 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
- 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