I decided to do a thorough study of Political Economy.
Discuss how economists use economic reasoning.
An artist sees color when he looks at the world.
A musician hears music when she looks at the world.
An economist sees a symphony of costs and benefits when she looks at the world.
The economist's world isn't as colorful or melodic as the others', but it is more practical.
If you want to know what's going on in the world, you need to know economics.
If you keep up with the news, I don't have to convince you.
There will be stories of unemployment, interest rates, how commodity prices are changing, and how businesses are doing.
The list is endless.
Let's say you agree that economics is important.
Part of what you learn depends on you, but another part depends on the textbook.
It can mean many things.
The study of economics refers to how the three central problems of the economy are solved.
There are fights, arguments, and questions that come up in a family.
A new sweater was given to Bobby.
Take the size of the family and divide it by millions.
The coordination questions faced by are millions of times more complicated than the fights and arguments.
Society is complicated in answering these questions.
Our means of fulfilling our wants are two elements of scarcity.
Since wants are changeable, they can be interrelated.
The way we fulfill wants can affect them.
If you work on Wall Street, you'll want upscale and trendy clothes.
In Vermont and Florida I wear Levi's and flannel, but in Florida I wear shorts.
The degree of scarcity is constantly changing.
The quantity of goods, services, and usable resources depends on technology and human action.
We don't know what technologies will be in our future, but they could possibly eliminate scarcity of goods we currently consume.
They wouldn't eliminate scarcity completely since new wants are constantly evolving.
The answer is not voluntary.
In all known economies, coordination has involved limiting people's wants and increasing the amount of work individuals are willing to do to fulfill those wants.
Many people would rather play than help solve society's problems.
Thinking like an economist, so that the things some people want to do are consistent with the things other people want to do.
Economic theory is divided into two parts.
Micro economic theory considers economic reasoning from the viewpoint of indi Micro economic theory considers economic reasoning from the viewpoint of indi
Micro economic studies such as the pricing policies of firms and how markets allocate resources among alternative ends.
Everything gets more complicated as we build up from micro economic analysis to an analysis of the entire economy.
The study of the whole is called macroeconomics.
The problems of inflation, unemployment, business cycles, and growth are considered.
Aggregate relationships such as how household consumption is related to income and how government policies affect growth are the focus of macroeconomics.
Think of the human body as an analogy.
A micro approach analyzes a person by looking at each individual cell.
A macro approach starts with the person and goes on to his or her components.
Microeconomics analyzes from the parts to the whole, Q-1 Classify the following topics as primarily macroeconomic or macroeconomics analyzes from the whole to the parts.
Microeconomics and macroeconomics are interdependent.
Aggregate output is what determines the impact of a tax increase on the economy as a whole.
The relationship between two examples is dependent on the pricing behavior of the competing firms.
People who are trained in economics think in a certain way.
They compare the costs and benefits of every issue and make decisions based on those costs and benefits.
Say you're trying to decide if a policy to eliminate terrorist attacks on airlines is a good idea.
They are open to the idea that security measures, such as body searches of every passenger or scanning all baggage with bomb- detecting machinery, might not be the right policy because the costs might exceed the benefits.
To think like an econo mist involves using a cost/benefit approach.
Economic rea soning involves abstracting from the unimportant elements of a question and focusing on the important ones by creating a simple model that captures the essence of the issue or problem.
By collecting empirical evidence and "testing" the model, you can see if it fits.
The economists returned to their desks cold.
He called his economic advisers and pondered their impossible task.
If they weren't successful, write up all the economic knowledge the society has about their fate.
After many years of hard work, they presented their last meal.
The delivery person was angry with the man for running a kingdom.
They looked at each other and wondered how they could summarize what they had learned.
They tried down the sentence and presented it to the king, who would make an appointment to see him.
They couldn't afford to live on their own, most of them earned less than $5 an hour.
Cost/benefit analysis is used to answer that.
Levitt's model assumes that people rely on a cost/benefit analysis to make decisions and that people do what is in their best interest financially.
He supports his argu ment through careful empirical work, collecting and organizing the data to see if they fit the model.
His work is an example of thinking like a modern economist.
Economic reasoning is infectious once learned.
Being exposed to it will change your life.
It will affect your analysis of issues that are normally considered outside the scope of economics.
You will most likely use economic reasoning to decide who will pay for dinner on Saturday night.
You will most likely use it to decide whether to read this book, attend class, marry, or work after you graduate.
This doesn't mean that economic reasoning will provide all the answers.
Throughout the book, you will see that real-world questions are complicated and economic reasoning provides a framework to approach them.
Every choice has costs and benefits, and decisions are made by comparing them.
The concepts of marginal costs and marginal benefits are important.
When making a decision, relevant costs are included.
For example, attending class, costs and benefits should be considered.
It is a sunk cost if you have already paid your tuition.
The marginal cost of going to class does not include tuition.
The marginal benefit of reading this chapter now is that you already know everything.
If you compare marginal costs with marginal benefits, you will be able to adjust your activities to be as well off as possible.
If you bought a share of my tuition, I can't get any of the Oracle for $100 and a share of Cisco for tuition back, so the tuition is a sunk cost and doesn't enter into my decision.
The price of each is fifteen dollars.
I want to tell her that I give a quiz every week, that students who miss a quiz fail the quiz, that those who fail all the quiz zes fail the course, and that those who fail the course do not graduate.
She is under estimating the benefits of attending my classes.
The marginal benefits of attending my class are underestimated.
She should attend my class.
It's reasonable to know that everything has a cost, but not everyone likes it.
Some of the passion is taken out of life.
Saving some people's lives may not be worth the additional cost.
The money could be better spent on nutrition programs that will save 20 lives for every 2 lives you save with transplants.
Maybe we shouldn't try to eliminate all pollution because of the idea that everything has a cost.
To eliminate all pollution might be too much.
Providing a guaranteed job for every person who wants one might not be a worthwhile policy goal if it means that the economy will not be able to adapt to new technologies.
You understand the idea.
This kind of reasonableness is criticized for being coldhearted.
Econ Omists argue that their reasoning leads to a better society for the majority of people.
Economists' reasonableness isn't appreciated by everyone.
I discovered some years back that businesses love the result, but others aren't so sure.
She knew that there were many types of reason ableness, but not everyone thought an economist's reasonable ness was a virtue.
It's not easy to put economists' cost/benefit rules into practice.
Is there a reason why it is possible to choose and measure the costs and benefits correctly?
Economists have come up with a cost/benefit approach to the problem of opportunity cost.
You must give up something else to get the benefit of something.
The opportunity cost is the market value of the next-best alternative and it is a cost if you choose one thing.
The opportunity cost concept is exemplified by the TANSTAAFL story in the added dimensions box.
Let's look at some examples.
The benefit you'd get from going out with your steady is the opportunity cost of going out with Natalie or Nathaniel.
The opportunity cost is the basis of the cost of cleaning up the environment and may be a reduction in the money available to assist benefit economic reasoning.
The opportunity cost of having a child might be two boats, benefit that you might have gained from choosing the next-best alternative.
What courses to take and how much to study are relevant to you.
At the beginning of the term, you had to choose five courses to be a full-time student.
Taking one precludes taking some other, and the opportunity cost of taking an economics course may be not taking a course on theater.
You don't have a lot of time to study economics, sleep, or partying.
The more time you spend on one activity, the less time you have for another.
That's the cost of opportunity.
Opportunity Cost focuses on two aspects of costs of a choice that are often forgotten-- Opportunity Cost implicit costs and illusionary sunk costs.
Students often study economics out of context.
Adam Smith could and sometimes in the appendixes ics as a subdiscipline, I'll put the also be classified as an anthropologist, a sociologist, and a analysis in perspective.
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