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Economics (Overview (Ten (10) principles (1 - 4 How people make decisions,…

- - - - 2 The cost of something is what you give up to get it
      - 3 Rational people think at the margins
      - 4 People respond to incentives
      - 1 People face tradeoffs
    - - 5 Trade can make everyone better off
      - 6 Markets are usually a good way to organize economic activity
      - 7 Governments can sometimes improve market outcomes
    - - 8 A country's standard of living depends on its ability to produce goods and services
      - 9 Prices rise in the long run when the government prints too much money
      - 10 Society faces a short run trade off between inflation and unemployment
  - - - The scientific method: experiments are difficult in economics. Economists must form theories based on historic episodes.
      - The role of assumptions: "Everything should be made as simple as possible, but not simpler" -- Albert Einstein
      - Economic models: Diagrams and equations
        
        Circular flow diagram: visual model of economy that shows how dollars flow through markets, among households/firms
        :mountain: (Micro 1 page 25)
        
        Production possibilities frontier: graph that show the combinations of output that the economy can possibly produce given: available factors of production, available production technology
        :mountain: (Micro 1 page 27)
    - - Positive vs normative analysis
        
        Positive statements: claims that attempt to describe the worlds as it is (economist as scientist)
        
        Normative statements: claims that attempt to prescribe how the world should be (economist as policy advisor)
      - Economists don't always give straight forward policy advice, because they understand that there are tradeoffs.
      - Economists' research and writings can often affect policy indirectly: "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood." -- John Maynard Keynes
      - Why economists' advice is not always followed
        
        Figuring out right policy is sometimes easiest part
        
        Communication advisers then need to assess how to explain the policy to the public
        
        Press advisers anticipate how news media will report, and likely opinions
        
        Political advisors weigh in on which groups will support or oppose the policy, how it will affect party standing in electorate, how it will affect support for other policies
    - - Differences in scientific judgements (validity of alternative positive theories)
      - Differences in values (normative views)
      - However, in many cases, economists do offer a united view. If policies are not enacted in these cases, may be because of politic reasons, or that the general public is not convinced.