MODULE 1/2- WHAT IS ECONOMICS?

by: J.A.SACCO

What Is Economics?

What is Economics?

CHOICES!!!

What Is Economics?• Compile a list of five goods/services you have bought in

the last 2 days?• What choices did you make in purchasing those goods

and services?• What choices were economic?

Macroeconomics vs. Microeconomics

Macroeconomics vs. Microeconomics

The Economic Person: Rational Self-Interest

• Economics is based on the belief that individuals act as if motivated by self-interest and respond to opportunity for gain.

“People do what is in their own best interests”

“Rationality Assumption”• People will not intentionally make decisions that would leave

them worse off.

People respond to rewards called INCENTIVES!!

Why are INCENTIVES important?

Economics as a Science?

• Models in Economics

An economic model doesn’t need to be an exact replica/just needs to be realistic!

Models and Assumptions• Assumptions are a shorthand for reality.• Models must be based on a set of assumptions---Makes

the model valid!

“Ceteris Paribus Assumption”?• Once we believe the model is a valid representation of the

world, it can predict real world phenomena.

The Business Cycle

Positive Versus Normative Economics

• Positive Economics• Purely descriptive statements or scientific predictions- Factual statements!

• Normative Economics• Analysis involving value judgments- Should…