Econ 202 – Professor Stephen Locke
Chapter 2 – Thinking like an economist
Feb 2nd and 4th,2016
Feb 2nd Tuesday
The Economist as Scientist
∙ Good Economic analysis will be objective
o Economic thinking is scientific thinking
▪ You don’t hire someone on the far right of the political spectrum to discover the effects of the affordable care act
o Develop and test theories with real-world data
∙ We make assumptions to simplify the complex world and make it easier to understand o Most common assumption – Ceteris Paribus (holding all else constant) ▪ Compare two people of the same race, age, income, etc. The only
difference should be what is being compared.
o Even the best models have assumptions that seem very unrealistic
o A model is judged on its ability to predict, not its assumptions
∙ Question: If you wanted to predict your grade on the first exam in this class, what variables would you put in your model? What variables would you leave out? o Attendance
o Homework grades
o Study time
▪ Some variables go in, some stay out
G & S = Goods and Services
We also discuss several other topics like What does a reversible reaction mean?
∙ The government is missing from this model but that is because the government is not necessary.
∙ Along with the taxes but we still don’t need them
The Production Possibilities Frontier - Maximum Combinations of output given the available resources (PPF)
Guns Vs. Butter - PPF
∙ Points inside the PPF are inefficient
∙ Points on the PPF are efficient
o Since the point is on the PPF the economy is getting all it can from is resources o Society decides where they land on the PPF
∙ Points outside the PPF are unattainable
o Trade makes the unattainable possible
What do we learn from this simple model?
We also discuss several other topics like What strategies are used to protect vulnerable populations?
∙ Scarcity – We can’t have all of everything
∙ Trade-offs – Must give up one good to get more of another
∙ Opportunity cost – more guns means less butter
∙ Increasing Marginal opportunity cost – if the resources are similar the PPF will be straight but if the resources are different then the PPF will be bowed
Feb 4th Thursday
Positive vs. Normative Statements
∙ Positive statements – Claims that attempt to describe the world as it is, was, or will be. o These can be tested
▪ “It will be 48 degrees’ tomorrow” – can be tested
∙ Normative statement – Claims that attempt to describe how the world should be o Opinions and non-verifiable statements
▪ “I think…” or “We should…” are how these statements begin.
∙ Normative statements influence positive statements because the normative statements influence how the world is viewed and bias puts a lens on what we believe the world can be like.
Reason for disagreement among Economist
There are two main reasons economists disagree
∙ Validity of alternative positive theories
o Disagree about assumptions
∙ Difference in values If you want to learn more check out What causes the production possibilities curve to shift?
Don't forget about the age old question of What is centroid formula?
We also discuss several other topics like How do you respond to working under pressure?
We also discuss several other topics like A fisherman describes his latest’s catch at 61.5 cm rainbow trout with a mass of 2.35 kg. what is the uncertainty in this situation?
o Economists are all human and have a broad range of beliefs and values A few things to keep in mind
∙ Correlation is not causation
o The more storks there is does not mean the storks are causing more births ∙ Look out for omitted variables
o The more tornadoes identified does not mean the weather is getting worse, over time the technology to identify the tornadoes has gotten better.
∙ Look for reverse causation
o More cops do not mean more crime. The reverse is actually the case. We then worked on plotting points on graphs that were handed out in class