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Eco Module 1 2
Eco Module 1 2
Economics
- Is the study of ALLOCATION OF SCARCE RESOURCES to meet UNLIMITED
human wants.
Economizing of Resources
- refers to making optimum use of the available resources.
METHODS IN ECONOMICS
USEFULNESS OF ECONOMICS
- economics provides an objective mode of analysis, with rigorous models
that are predictive of human behavior.
a. Scientific approach
b. Rational choice
ASSUMPTIONS IN ECONOMICS
- economic models of human behavior are built upon assumptions; or
simplifications that permit rigorous analysis of real-world events, without
irrelevant complications.
a. model building - models are abstractions from reality - the best model is
the one that best describes reality and is the simplest Occam’s Razor.
b. simplifications:
1. ceteris paribus - means all other things equal.
2. There are problems with abstractions, based on assumptions. Too often, the
models built are inconsistent with observed reality - therefore they are faulty
and require modification. When a model is so complex that it cannot be easily
communicated or its implications easily understood - it is less useful.
GOALS AND THEIR RELATIONS
c. Economics is not value free, there are judgments made concerning what is
important:
1. Individual utility maximization versus social betterment
2. Efficiency versus fairness
3. More is preferred to less
2. options - identify the various actions that will accomplish the stated goals
& select one, and
OBJECTIVE THINKING:
b. fallacy of composition - is simply the mistaken belief that what is true for
the individual, must be true for the group.
c. cause and effect - post hoc, ergo propter hoc - After this, because of this
fallacy.
1. Focus on the addition to benefit, and the addition to cost as the basis
for decision-making.
MODULE 2 : THE ECONOMIC PROBLEM: SCARCITY AND CHOICE
Capital - refers to the things that are themselves produced and then used to
produce other goods and services.
The basic resources that are available to a society are factors of production:
1. Land
2. Labor
3. Capital
Capital Goods - are goods used to produce other goods and services.
Economic Systems - are the basic arrangements made by societies to solve the
economic problem. They include:
● Command economies
● Laissez-faire economics
● Mixed Systems
Market - is the institution through which buyers and sellers interact and engage in
exchange.
Consumer sovereignty - is the idea that consumers ultimately dictate what will be
produced (or not produced) by choosing what to purchase (and what not to
purchase).
Free-enterprise - under a free market system, individual producers must figure out
how to plan, organize, and coordinate the production of products and services.
Since markets are not perfect, governments intervene and often play a major role in
the economy. Some of the goals of government are to: