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Chapter 2

ECON 1BB3 Chapter Notes - Chapter 2: Swimming Pool, Scientific Method, January 8


Department
Economics
Course Code
ECON 1BB3
Professor
Bridget O' Shaughnessy
Chapter
2

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Richard Damra Tuesday, January 08, 2013
Econ 1BB3 Chapter 2
Recap of Ch 1
Likely criminals: Young men, raised in poverty. Without abortion, unwanted babies were born
and grew up to be criminal. Legalizing abortion prevented unwanted criminals from being born.
Therefore, abortion lowered crime rates
Chapter 2
(1)Why is econ difficult?
o Express ideas in economics:
1. English Language
2. Algebra/Equations
3. Diagram/graph
Translate between each different form of communication
Example: People buy less coffee when the price of coffee rises.
Q of C = 100-3P sub c
(2)Economics is a social science
o Social = people
o Science = use scientific method
Observe
Theorize
Test theory (if fails go back to theorize)
(3) Micro vs Macro
o Microeconomics: individual households & firms and how they interact
o Macroeconomics: economy wide phenomena such as interest rates, unemployment,
money and growth
(4) Efficiency vs Equity
o Efficiency is the size of the pie
o Equity is how the pie is divided
o If we are more efficient we can make a bigger pie (Efficiency)
o Typically there is a trade-off between the two in the market economy, if we are more
efficient we are less equity, vice versa.
o Communists is a perfect trade off in theory but incentive comes into play. Since
everyone is getting the exact same as everyone else there is no incentive to work harder
(Vodka break)
(5) Positive vs Normative analysis
o Positive: the world “as it is”
o Normative: the world “as it should be”
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