26 BEWARE of the following pitfalls as you study economics (added material not in text) Correlation vs. causation Fallacy of composition
27 Correlation vs. Causation Two variables are correlated if one variable changes when the other variable changes. This does NOT mean that changes in one variable CAUSE changes in the other.
28 Examples: Correlation vs. causation A war breaks out in Timbuktu today and the U.S. stock market falls—did the war cause the market to fall? The economy began growing in 1992 about the same time Clinton was elected president. Does this mean that the Clinton election improved the economy?
29 The Fallacy of Composition The often mistaken belief that what is true for a part is necessarily true for the whole
30 Examples of the Fallacy of Composition If one student stands up in class, they can see the board better—so if all students stand up will they all see better? If I had a million dollars, I am rich, so if we all had a million dollars, would be all be rich?