Transcript lec1 - People.vcu.edu

Welcome to Econ 210
Dr. Mitchell
Chapter 1
The Science of Economic Analysis
Economics

The study of choice, given we face
scarcity
Scarcity
A good is scarce when, at a zero price,
more is desired than is available.
 Almost everything “good” is scarce.
 Example of something not scarce: sand
in the desert.

Branches of Economics
Microeconomics: Studies households,
firms, perhaps an industry.
 Macroeconomics: Studies aggregates
such as GDP, price level, interest rates,
unemployment.

The Science of Economics
A Social Science
 Uses theories & models to describe
behavior & predict it. The goal is to
predict behavior.
 We look for the simplest theories that
can still predict well.

Three Ways to Test Economic
Theories
Use actual data. Must use statistical
methods to separate multiple causes &
effects.
 Conduct a policy experiment. Try a new
policy on a small scale to see what the
effects are.
 Laboratory experiment. Test behavior in
a “pure” setting. Often uses college
students as subjects.

Potential Pitfalls in any
Science
Causation v. Correlation Pitfall
 Correlation: two effects or events tend
to be observed together.
 Correlation may be caused by:

- one causes the other, or vice versa
- something else causes both
- coincidence
Example of Correlation
without Causation

Heavy drinkers have high rates of lung
cancer.
- Does one cause the other?
- Is there something else that might cause
both?
- Is there something else that might cause
one to be correlated with the other?
Post Hoc, Ergo Propter Hoc
Pitfall
“After the fact, therefore because of the
fact.”
 Example: Your G.P.A. fell last semester,
the first one in which you lived apart
from your parents. Your parents
conclude that you must move back
home this semester.
 Will your grades rise?

Positive v. Normative
Economics
Positive econ: studies the effects of
policies or events.
 Normative econ: evaluates what should
be done in light of those effects.
 Which is which? Elimination of Virginia’s
car tax

- will reduce state revenues.
- should be financed by cuts in the higher
education budget.
Next Time
Continue introduction to economics
 Continue Ch.1, begin Ch. 2
