The invisible hand theorem is an important part of any economics course.
The assumptions on which it is based and the limitations of the invisible hand are important parts of the course.
I will do both of them in the book.
Theory is a shorthand way of telling a shorthand way of telling a story.
The stories make the theory a story.
I present a lot of theories and models, but they are accompanied by stories that show the context that makes them relevant.
When there are many new terms, discussing theories takes up a lot of the presentation time.
That is the nature of the beast.
Think about the underlying story of the theory when it becomes oppressive.
The story should be concrete.
You don't understand the theory if you can't translate it into a story.
If you want to apply economic theory to reality, you need to know about eco, nomic institutions, common practices, and organizations in a society that affect the economy.
Corporations, governments, and cultural norms are all examples of eco- institutions.
Economic institutions operate in ways that are different from eco nomic theory.
Economic theory says that prices are determined by supply and demand.
Businesses say that they set prices by rules of thumb--often called cost-plus-markup rules.
The price is determined by the firm's costs being divided by 1.4 or 1.5 and the result is the price it sets.
Economic reasoning plays firms that reduced emissions by increasing their role in government policy.
The Clean Air Act was passed in 1970 because of the strong incentive to reduce response to concerns about pollution.
The amount of pollutants that could be capped was for firms that had a high cost of reducing sulfur dioxide, carbon monoxide, nitrogen and other pollutants.
This was a "command-and-control" approach to regulation,duction was the same, but the reduction was achieved at a which brought about a reduction in pollution, but also lower cost.
De Enter economists have an active market in emissions.
The cost of reducing sulfur dioxide overall reduction in pollution is estimated to have been lowered by the cap-and-trade program that they proposed.
In emissions by $1 billion a year, the government still set a pollution cap that is more than half of what firms had to meet, but it gave individual firms below the cap.
Some cap-and-trade programs have flexibility.
Firms that reduced emissions less than others.
The current state of the required limit can be found at www.epa.gov/airmarkets.
There are two different explanations for the apparent contradictions.
These issues may be related to the differ ences.
Economic principles can affect decisions from behind the scenes.
The supply and demand pressures determine what the price will be.
To gain the full value of economic insights, you have to have a sense of economic institutions.
The economic policy options facing our society are presented in the final goal of the course.
There is no sense in talking about policy options if you don't know economic terminology, economic theory, and economic institutions.
Policies can influence the institutions to carry out economic policy effectively.
One needs to understand how institutions tion of the two-parent family is affected by welfare policy.
A variety of might change was developed in the United States in the 1960s.
The initiatives provided income to single parents with children and assumed that family structure would not change.
The number of single-parent families increased due to the changes in family structure.
The programs failed to eliminate poverty.
It is only to say that we must build into our policies their effect on policies offer the largest gains if we want to eliminate poverty.
Good economic policy analysis keeps the analyst's value judgments separate from the analysis.
"This is the way things should be" is not reflected in objective analysis.
The analyst's view of how things should be would be reflected in that analysis.
An objective analysis tries to keep an individual's subjective views separate.
That doesn't mean that policy analysis doesn't involve value judgments.
An objective researcher attempts to make the value judgments being used both trans parent and not his own, but instead value judgments an "impartial spectator"
The pure theory of economics is explored and how the economy works.
Eco nomic theorists relate their theories to the facts.
These questions are under the heading of eco nomic theory.
Economic theory doesn't provide definitive policy recommen- Q-9 John, your study partner, is a dations.
It's too abstract and makes too many assumptions that don't match the free market advocate.
He believes in that behavior.
There are positions that logically follow the assumptions of the model.
These theorems don't tell us what to do.
Policy is decided by economists with insights from positive economics.
It should be.
It is not possible to assume that one's own goals for society are society's goals.
Let's look at an ongoing debate in economics.
Some econo mists are worried about climate change, they believe that high consumption in rich societies is causing it, and that the high consumption is a result of 18 introduction.
The economists argue that society's goal should be more focused on the implications of economic activities for climate change and the distribution of income.
Philosophers advise economists on what the goals of society should be.
That hasn't always been the case.
The goal required economists to consider policy in terms of consequences, not morality.
They had to consider policy from the perspective of a fair society, not from a per spective that was good for one group.
They had to bend over back to maintain impartiality.
Early economists argued against slavery and the oppression of women at a time when those positions were unpopular and seen as radical.
It led them to argue in favor of significant coordination of society by the market, which they felt would bring about greater happiness for a greater number than would the alternative of significant government coordination.
Their port of markets was based on their moral philosophy.
People were not expected to arrive at definitive policy conclusions based on this tool.
They saw the tool as a way for people to discuss policy in terms of what was best for society as a whole, not what was best for themselves or their friends.
The tool would focus on the impact of policy on people in the community, rather than on the morality of policy.
The approach to morality was an important part of policy economics, and how economists moved from the theo rems developed in science to policy precepts.
The economists decided that it was impossible to determine the goals of policy scientifically.
A general measure of people's welfare used in policy analysis is not scientifically measurable.
Economic science does not lead to policy conclusions.
To move to policy conclusions, one needs to supplement science with moral philosopher insights developed in self-reflective considerations and discussions with others about what is meant by the greatest good for the greatest number.
Policy economists have to picture themselves walking in the shoes of every person they have ever met.
The recommended policies reflected the debate about climate change.
Scientists are now convinced that cli is in action, if you want to change the re mate change is occurring and that you want to change the incentives that individu man activity such as the burning of fossil.
The costs of not doing any complicated policy issues since they differ in their norma thing would likely reduce output by 20 percent in the tive views and their assessment of the problem and of future, and those costs are weighted for when what politically can be achieved.
The economic framework is the second part of the question.
Policies that raised the lowed and decreased the take part in the debate were recommended by him.
The art of economics is what most policy discussions are about.
Positive economics, The Art of Economics, and goals are all related to precepts.
The art of economics requires econo- Q 10 to tell if the following mists are appropriate for achieving the goals in the five statements.
Once the assumptions are agreed upon, models are not debatable, precepts are debatable, and economists use the same or the art of economics.
A model can tell us that rent con- 1.
The market is efficient.
Rent controls may have some achieve efficient results, since the market that rent controls are bad policies.
Rent controls are bad policy because of a judg- 3.
If one wants a reasonably efficient result, markets should probably be relied on.
Keynes made this three-part distinction back in 1891.
Keynes and Lipsey in the 1950s instilled in modern economics the idea of markets allocating income.
The art of economics was downplayed by the contributors.
When I say that economists tend to favor a policy, I am talking about precepts, which means that alternative perspec tives are possible even among economists.
In each of the three branches of economics, economists separate their own value judgments from their objective analysis.
"As much as possible" is important, since some value judgments inevitably sneak in.
We are products of our environment, and the questions we ask, the framework we use, and the way we interpret the evidence all reflect our background.
Positive economics is easiest to maintain objectivity in, where you are working with models to understand how the economy works.
It is difficult to maintain objectivity in economics.
You should always be objective about the values you are using.
It's easy to assume that all society shares the same values.
Maintaining objectivity is difficult in economics because it can suffer from both positive and negative economics.
To practice the art of economics, we must make judgements about how non economic forces work.
Our own value judgments are likely to be reflected in these judgments.
We have to be very careful in practicing economics.
When you think about the policy options facing society, you will quickly realize that the choice of policy options is much more than economic theory.
Historical precedent, social, cultural, and political forces must be taken into account to understand what policies are chosen.
I don't have time to analyze these forces in the way I would like.
There are separate history, political science, sociology, and anthropology courses.
It is true that the other forces play a significant role in policy decisions.
If the invisible hand were the only force that could operate the economy would be different.
We must take into account political and social forces when applying theory to reality and policy.
It will make my point more concrete.
It's good economic sense to hold down or eliminate tariffs on imports, according to most economists.
Governments should follow a policy of free trade.
Society is led in a different direction by politics.
If you're advising a policy maker, you need to make sure that the other forces are taken into account and that they can be integrated with your recommendations.
A lot more could be said to introduce you to economics, but that's not an introduction.