ECON 111 Chapter Notes - Chapter 2: Equation, Scatter Plot, Exogeny
27 May 2018
School
Department
Course
Professor
ECON 111: Introductory Microeconomics
Chapter 2 Notes
Term: Summer 2018
Course offered by:
Department of Economics
Faculty of Arts and Science
Queen’s University
Compilation date: May 11, 2018
Notes compiled by:
Tom (Ke Jun) Sung
B.A.Sc. Candidate
Queen’s University
Source:
Christopher T.S. Ragan, Microeconomics, 15th Canadian edition, Toronto: Pearson Canada Inc.,
2017.
Disclaimer:
The material in this document is taken from the mentioned source and should be used for
reference only. The document compiler cannot assure 100% accuracy as there may be errors
present in this document. The mentioned source should be used if there is any doubt on
information accuracy.
In addition, without permission from the owners (direct or indirect), the material in this
document cannot be reproduced. Thank you for your cooperation.
ECON 111: Chapter 2
Table of Contents
2.1: Positive and Normative Statements .................................................................................... 1
Disagreements Among Economists .................................................................................................... 1
2.2: Building and Testing Economic Theories ............................................................................. 2
What Are Theories? ............................................................................................................................ 2
Variables ....................................................................................................................................................... 2
Assumptions ................................................................................................................................................. 2
Motives .................................................................................................................................................... 2
Direction of Causation .............................................................................................................................. 2
Condition of Application ........................................................................................................................... 2
Predictions .................................................................................................................................................... 3
Testing Theories ................................................................................................................................. 3
Statistical Analysis ......................................................................................................................................... 4
Correlation Versus Causation......................................................................................................................... 4
2.3: Economic Data .................................................................................................................... 4
Index Numbers ................................................................................................................................... 4
How to Build an Index Number ...................................................................................................................... 4
More Complex Index Numbers ...................................................................................................................... 5
Graphing Economic Data .................................................................................................................... 5
Cross-Sectional and Time-Series Data ............................................................................................................ 5
Scatter Diagrams ........................................................................................................................................... 5
2.4: Graphing Economic Theories ............................................................................................... 5
Functions ............................................................................................................................................ 5
Graphing Functions ............................................................................................................................ 6
The Slope of a Straight Line ........................................................................................................................... 6
Non-linear Functions ..................................................................................................................................... 6
Functions with a Minimum or a Maximum ..................................................................................................... 6
Compiled by: Tom (Ke Jun) Sung
1
Chapter 2: Economic Theories, Data, and
Graphs
2.1: Positive and Normative Statements
• Economists give two broad types of advice: normative and positive
• Normative statement: a statement about what ought to be; it is based on a value
judgement
• Positive statement: a statement about what actually is, was, or will be; it is not based
on a value judgement
o Opposing positive statement means challenging evidence that is found
• Distinction between normative and positive statements is fundamental to scientific
progress
• Distinguishing what is actually true from what we would like to be true requires
distinguishing between positive and normative statements
Examples of positive and normative statements can be seen in the table below.
Table 1: Positive and Normative Statement Examples
Positive
Normative
A
Raising interest rates encourages people to save
F
People should be encouraged to save
B
High rates of income tax encourage people to
evade paying taxes
G
Government should arrange taxes so that people
cannot avoid paying them
C
Lowering the price of cigarettes leads people to
smoke less
H
The government should raise the tax on cigarettes
to discourage people from smoking
D
The majority of the population would prefer a
policy that reduced unemployment to one that
reduced inflation
I
Unemployment is a more important social
problem than inflation
E
Government financial assistance to commercial
banks is ineffective at preventing job losses
J
Government should not spend taxpayers’ money
on supporting commercial banks
Disagreements Among Economists
• Economists often disagree in public discussions
o Due to poor communication
o Failure to acknowledge the full state of their ignorance
§ Must be clear about relevant facts used in their judgements
• Many disagreements are based on positive/normative distinction
o Must state clearly what is positive and normative to avoid confusion
• Economy is complex and hard to predict, leading to little agreements among economists
o Agreed topics would be along the lines of how economy works and what
happens when government intervenes with the economy
13
ECON 111 Full Course Notes
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Document Summary
Ragan, microeconomics, 15th canadian edition, toronto: pearson canada inc. , The material in this document is taken from the mentioned source and should be used for reference only. The document compiler cannot assure 100% accuracy as there may be errors present in this document. The mentioned source should be used if there is any doubt on information accuracy. In addition, without permission from the owners (direct or indirect), the material in this document cannot be reproduced. How to build an index number 4. The slope of a straight line 6. Functions with a minimum or a maximum 6. Examples of positive and normative statements can be seen in the table below. A raising interest rates encourages people to save. B high rates of income tax encourage people to. G government should arrange taxes so that people. Lowering the price of cigarettes leads people to smoke less cannot avoid paying them.
