ECON202, Maclachlan, Spring 20051 Interdependence & Gains from Trade Week 2.
ECON202, Maclachlan, Spring 20051 TEN PRINCIPLES OF ECONOMICS Week 1, Chapter 1.
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Transcript of ECON202, Maclachlan, Spring 20051 TEN PRINCIPLES OF ECONOMICS Week 1, Chapter 1.
ECON202, Maclachlan, Spring 2005 2
ECONOMY
From the Greek for one who manages a household.
Key concept: scarcity.
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Definition
Economics: the study of how society manages its scarce resources.
Mankiw summarizes all of economics with 10 principles …
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8. A country’s standard of living depends on its ability to produce
goods and services.
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10. Society faces a short-run tradeoff between inflation and unemployment.
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Economists as Advisors
Harry Truman said he wanted a one-armed economist.
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Ten Things Economists Agree On
1. A ceiling on rents reduces the quantity and quality of housing available. (93%)
2. Tariffs and import quotas usually reduce general economic welfare. (93%)
3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
4. Fiscal policy has a significant stimulative impact on a less than fully employed economy. (90%)
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5. If the federal budget deficit is to be balanced, it should be done over the business cycle rather than yearly. (85%)
6. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
7. A large federal budget deficit has an adverse effect on the economy. (83%)
8. A minimum wage increases unemployment among young and unskilled workers. (79%)
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9. The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
10. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)
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Scientific Methodology
“The whole of science is nothing more than the refinement of everday thinking.”
--Albert Einstein
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Role of Assumptions
A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore.
The physicist says, "Lets smash the can open with a rock."
The chemist says, "Lets build a fire and heat the can first."
The economist says, "Lets assume that we have a can-opener...“
--Paul Samuelson
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Microeconomics vs. Macroeconomnics
Micro: the study of how households and firms make decisions and how they interact in markets.
Macro: the study of economy-wide phenomena, including inflation, unemployment and growth
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Positive vs. Normative Statements
Positive statements: claims that attempt to describe the world as it is.
Normative statements: claims that attempt to prescribe how the world should be.