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The Nature and Method of Economics

The Nature and Method of Economics. “Want is a growing giant whom the coat of Have was never large enough to cover.”. Definition of Economics. The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human material wants.

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The Nature and Method of Economics

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  1. The Nature and Method of Economics “Want is a growing giant whom the coat of Have was never large enough to cover.”

  2. Definition of Economics • The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human material wants. • Human wants are unlimited , but the means to satisfy the wants are limited.

  3. The Economic Perspective • Scarcity and choice • A situation in which human wants are greater than the capacity of available resources to provide for those wants. • A situation in which a resource has more than one valuable use. • IT IS THE ECONOMIC PROBLEM. You can experience scarcity even when you live in abundance.

  4. Rational Behavior • Rational self-interest entails making decisions to achieve maximum fulfillment of goals. • Rational self-interest is not the same as selfishness.

  5. Marginalism • Benefits and costs • Each option considered weighs the marginal benefit against the marginal cost. (Pro/con list; Costs/benefits analysis) • The marginal cost of an action should not exceed its marginal benefits. • TINSTAAFL (There is no such thing as a free lunch).

  6. Economic methodology • Use of the scientific method observation>hypothesis>theory>principle or law Economic models : graphic representations Ceteris paribus assumption/other things equal

  7. Economic/social goals • Economic growth • Full employment • Economic efficiency • Price level stability • Economic freedom • Equitable distribution of income • Economic security • Balance of trade

  8. Macroeconomics v. Microeconomics • Macro : economy as a whole • Micro: specific units of economy (people and firms)

  9. Positive v. Normative Economics • Positive : describes economy as it is • Normative : value judgments about what economy should do/policy options • Most disagreements from normative

  10. Pitfalls to objective thinking bias(try to step away from your world view and focus on facts in evidence) loaded terminology (ex: “greed”) definitions (ex: Investment v. investment) fallacy of composition(whatis true for part is not necessarily true for the whole) post hoc ,ergo propter fallacy(afterthis, therefore because of this) The Otter Defense: http://www.youtube.com/watch?v=6PYb_anBMus

  11. More pitfalls • Correlation v. causation • (correlation = connection, not necessarily causation) • POLIO • http://www.youtube.com/watch?v=lbODqslc4Tg&feature=c4-overview-vl&list=PLBD4E8D68EB4706F5

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