Transcript Chapter 1, Section 4

Chapter 1, Section 4
The Economist’s Toolbox
Objectives
• Demonstrate how and why
economists use economic models
• Understand how and why
economists use statistics, charts,
tables, and graphs
• Compare macroeconomics to
microeconomics
• Contrast positive economics with
normative economics
Discussion
What kind of data do you encounter in your
daily lives?
The ability to interpret data in different formats
is an essential skill in an increasingly
technological world.
Working with Data
• Economics is something we use in everyday
life. Economists study how individuals,
businesses, and government officials make
economic decisions.
• Statistics: numerical data or information.
Economists use statistics to see patterns of
behavior.
Evaluating Statistics
• Task: Evaluate statistics by determining the
mean, median, and mode
• Activity:
• You will be divided into three groups and
review the following statistics.
Charity Information
• Below is the yearly charitable giving by
families living on Wilcox Avenue.
• Family A: $15; Family B: $0; Family C: $50;
Family D: $100; Family E: $15; Family F: $45;
Family G: $5,000/ Group 1 find the mean
(total donations and divide by the number of
families); Group 2 find the median (place
numbers in value order and identify number
in the middle); Group 3 find the mode
(identify which number appears most often)
• You should know that all of these can be
considered an “average.”
• Mean=$746.42; Median=$45; Mode=$15
Using Economic Models
• Economists express models in words, graphs,
or equations. Models can help economists to
predict future economic activity.
• Using Charts and Tables: Economists study
statistics to look for trends, connections, and
other relationships. Most use charts and
tables. This data is arranged and displayed in
rows and columns.
Using Graphs
• Economists identify trends in statistics, they
use graphs or visual representations. The
most common type is the line graph. A line
graph is particularly useful for showing
changes over time. Line Graphs: use two sets
of numbers or variables.
• Bar Graph: used to make comparisons.
• Pie Graph: usually called pie charts or circle
graph, representing numbers in relation to a
whole.
Analyzing Graphs:
Figures 1.8,1.9, and1.10
• Using the graphs on page 26 answer which
type of graph would be best to display each of
the following:
– Ethnic heritage of students at school
– Salaries of college-educated women compared to
salaries of college-educated men
– State government budget
– Growth in the sale of hybrid cars since 1995
Microeconomics and
Macroeconomics
• Microeconomics: is the study of the behavior
of individual players in the economy, examples
would be individuals, families, and businesses.
• Macroeconomics: Study of the behavior in the
economy as a whole and involves topics like
inflation, unemployment, aggregate demand,
and aggregate supply.
Microeconomics
• Micro- meaning small, examines specific,
elements in an economy. These elements
include prices, costs, profits, competition, and
consumers and producers behavior. There are
specialized areas within microeconomics;
business organizations, labor markets,
agricultural and environmental.
Microeconomics
• Microeconomics helps us understand why
sandwich shops serve the same food, but
some make and other’s don’t.
• The explanation why some students decide to
work only on the weekends and not on school
nights.
• Why a mom and pop grocery store closes after
a superstore opens nearby.
Macroeconomics
• Macro-meaning large, examines the economic
“big picture.” Macroeconomics is the study of
the economy as a whole.
• Example: the limited spending power of the
unemployed person would be
microeconomics, the effect of widespread
unemployment on the whole nation would be
a macroeconomics issue.
Macroeconomics
• Example: rising price of coffee would reflect
the interest of microeconomist, the general
rise in prices, would be a sign of inflation, this
would be of interest to a macroeconomist.
Microeconomics considers the individual
consumer. Macroeconomics studies the
consumer sector called the household sector.
Macroeconomics examines studies the
business, public, &government sector-the part
of our economy that provides goods/services.
Macroeconomics
• Field of economics divided into
macroeconomics and microeconomics during
the worldwide economic depression in the
1930s. The prevailing economic models were
not able to adequately describe the forces
that led to the depression. So, economists
needed new models and a new perspective. At
the same time, national accounting-measuring
national income and product statistics-was
just coming into use.
• John Maynard Keynes: a British economist was
one of the earliest and most important
macroeconomists.
Positive Economics and
Normative Economics
• Positive economics: describes and explains
economics as it is, not as it should be. Positive
economics uses verifiable facts, no value
judgment.
• Normative economics: describes and explains
what economic behavior ought to be, not
what it actually is. Normative economics does
involve value judgments it seeks to make
recommendations for actions.
Positive Economics
• Positive economics uses scientific method to
observe data, hypothesize, test, refine and
continue testing.
• Example: A state is debating to implement the
lottery to help gain money for education.
Economist would study states with lotteries to
see if educational spending increased after
the lotteries were begun.
Normative Economics
• Normative economics is based on value
judgments. It goes beyond the facts to ask if
actions are good. Values of people differ.
• Two economists agree on the data that state
run lotteries result in more money for schools
and most lottery tickets are purchased by the
poor. They are going to differ because of
different values. One economist supports the
lottery, the other may be a burden on the
poor.
NAFTA
page 29
• The North American Free Trade Agreement
became effective in 1994 and its goal is to
eliminate trade barriers among Mexico, the
United States, and Canada. In 1992,
Presidential candidate H. Ross Perot predicted
that NAFTA would produce a “giant sucking
sound” as jobs and investments left the
United States for cheaper locations. In the
early 1990s, NAFTA was the center of
NAFTA
• normative economic debates but was
ultimately supported by President Bill Clinton
and enacted. The loss of jobs and investments
predicted by Perot has not happened.
Creating an Economic Collage
• Task: With a small group, create a collage from
magazine and newspaper illustrations and
headlines depicting one kind of economics.
• Materials Needed: magazines and newspapers
that can be cut up; eight scissors; glue sticks;
paper
Collage Activity Continued
• Activity:
• I will divide you into four groups,
corresponding to: microeconomics,
macroeconomic, normative economics, and
positive economics.
• Groups will find items in newspapers and
magazines that illustrate their kind of
economics. Use the items to create collages.
Label your collage.
Collages Continued
• When the collages are finished, have someone
from each group present the collage,
explaining each picture.
Current Economic Events
Homework
• Task: Find an item in the news that has stirred
debate and reflects differing viewpoints within
normative economics.
• Examples: may include the future of social
security, a labor dispute, occupy a city, or
federal funding of education.
Adam Smith
Page 30
• Listen and Visualize:
• Draw a picture that represents some of the
key ideas in the reading.
• You will present you finished work to the class,
explaining why you chose the image you did.