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Welcome to PMBA0608: Economics/Statistics Foundation

This text provides an overview of statistics in economics, covering topics such as descriptive and inferential statistics, population vs. sample, and the circular flow model. It also explores the uses of statistics in decision-making, such as determining advertising budgets and predicting inflation rates. Additionally, it discusses the factors that influence participation in the shadow economy in Brazil.

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Welcome to PMBA0608: Economics/Statistics Foundation

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  1. Welcome toPMBA0608: Economics/Statistics Foundation • Session 2: August 26 • Assignment 1 is posted: Due on or before September 2 • Next time we will meet on Wednesday, September 6 at 19:30-22:45 • Before next class, please study • Chapters 1 through 4 of Mankiw • Chapters 1 through 3 of Mendenhall, Beaver & Beaver

  2. What is statistics? • statistics is the science of learning from data

  3. What are the uses of statistics in your line of work? • How much should your company spend on advertising? • Should your company increase the price of good and services it produces? • Should shoplifting detection devices be hidden or should their presence be made obvious? • What will the rate of inflation be next year

  4. Here is the question of my interest these days • What are the factors significantly increase the probability of an individual’s participation in Brazilian shadow (underground) economy?

  5. Population/Sample • Problem: I don’t have the resources to study the behavior of every individual who lives in Brazil. (population size = N) • Solution: Study the behavior of a representative gorup (sample size = n). • Here we are referring to sets of objects on which measurements are to be taken.

  6. Another distinction between population and sample • There is a population of characteristics each individual poses (N characteristics) • I will look at of a sample of these characteristics (n characteristics) • Here are we are referring to a set of measurements themselves.

  7. What is the difference between descriptive versus inferential statistics? • Descriptive Stat. • Organizes/summarizes/ aggregates describes to understand better. • Inferential Stat. • Uses sample information to draw conclusions or make a prediction about the population.

  8. In my study • I will use descriptive statistics to summarize my sample. • But my main goal is to use inferential statistics to use sample information to predict the probability of a Brazilian participating in the shadow market.

  9. Is this descriptive to inferential?The Size of Shadow Economy (as a percentage of GDP in 1999-2000)

  10. Is this descriptive to inferential?(Source:http://www.forecasts.org/djia.htm) Dow Jones Industrial Average Stock Index Past Trend, Present Value & Future Projection

  11. Five elements of statistical problem • Definition of objective • Design of experiment or sampling procedure • Collection and analysis of data (descriptive stat.) • Make inferences about the population. (inferential stat.) • Measurement of the goodness of inference.

  12. Thinking like an economist (Mankiw Chapter 2) • Casual observation: There seems to be a lot of unofficial (underground) employment in Brazil. • Theory: The more complicated and costly the employment laws the bigger the size of underground employment. • Does this theory always hold?

  13. What if at the same time that employment laws become more complicated, law enforcement becomes more effective too? • Then underground employment may or may not grow. 2. Building a model (mathematical/graphical) • Assumption: All else remains constant 3. Theory: All else constant, the more complicated and costly the employment laws the bigger the size of underground employment.

  14. 4. Testing the theory: More observation • Here is where ________ statistics comes handy. • What if the minimum wage is lowered by 10%? • Here is where _______statistics comes handy. 5. Prediction: Underground employment will shrink by 5%.

  15. Economic resources (factors of production) • Are scarce • Categories • Labor • Anyone who is hired to use his mental/physical ability to produce a good or a service 2. Capital • Produced means of further production • Land • Natural resources • Entrepreneur • Anyone who plans production and takes a risk

  16. Circular Flow Model • Shows how money as well as real goods, services and resources flow through the economy • Most important assumptions • No government • No international trade • No financial institutions • Only 2 sectors in the economy: • households and firms • Only 2 markets: goods and factors of production

  17. Circular Flow Model Expenditures Market for goods and services Revenue goods & services goods & services Households Firms factors of production Factors of production Cost Market for factors of Production Income

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