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Economics

study of how individuals make chouces amoung scare resources and how these choices affect society

benefits of study economics

satisfy degree requirements, devolop ability to think like an economist, increase earning potential

micro econ

study of how individuals, households, firms , and the government make decisions, how those decisions affect prices, the allocation of resources, and well being of other agents

macro econ

study of the economy as a whole, growth of country's total economic output, inflation rate, rate of unemployment, etc...

positive economics

the analysis that generates objective descriptions or prediction which can be verified with the data.......facts

normative economics

the analysis recomends what an individual or society out to be which is almost always dependent on subjective judgement. .......judgement

principles of economics

Optimization, Empiricism, Equilibrium

optimization

economists believe that people try to do as well as they can given the limited info experience and training they have

Equilibrium

the economic system is in equilibrium in which all agents believe they can not do any better by picking another course of action

Empiricisim

economists use data to develop theories, tests theories, to evaluate the success of different govt policies, and to determine what is causing things to happen

budget set

economists face scare resources and they can only choose options within the resources that are available

trade offs

all optimization problems require agents to give up some benefits to gain others

opportunity cost

the best alternative sacrificed for a chosen alternative

cost benefit analysis

analysis ot find the greatest net benefits, includes benefits and costs including o.cost expressed in common unit

net benefit

the benefits of choosing an alternative minus the sum of the costs of choosing the alt

Correlation

events a and b simultaneously occur but the directions of causation cannot be determined or some other factors play a casual role

causation

event a causes event b to happen or vice versa

sci mo

develop models and eval models by testing them with data

model

simplified description of reality

evaluation of good model

parsimony: is it simple

tractability, easy to work with

conceptual insiightfulness: illustrate important idea

generalizability

empirical consistency: consistent with known facts

predictive precision: does it make sharp prediction

hypotheses

predictions generated by the model that can be tested by data

mean

average value of group of numbers

median

the value in the middle of a group of numbers

mode

The value that occurs most frequently in a given data set.

correlation again

when two events are related

positive correlation

the events both change in the same direction

negative correlation

the events change in opposite directions

when events a and b are correlated

suggests that a may cause b byt such causation can not be guaranteed

ommited variables

there is another factor that causes both events a and b

reverse causality

when event b causes event a rather than a causing b

how to identify causal relationships

controlled experiments and natural experiments

controlled experiment

subjects are randomly assigned to treatment or control groups in a random or nearly random way and are out of control of the experimenter

randomization ensures that subjects are homogeneous between control and treatment groups. only difference being the treatment variable

experimenter can control the variable

natural experiment

subjects are randomly assigned to treatment or control groups in a random or nearly random way and are out of control of the experimenter

experimenter cannot control variable

where to obtain economic data