I hate grade level econ. I’m stuck with all the losers while all my friends are Walton’s AP class. Pitfalls in Economics

The reason for conflicts over Macro policy usually Stems a misunderstanding of either the economic Problem or the proper solution. Remember proper Solution does not mean the best solution; but rather the solution that will benefit the most in our society. Misunderstanding usually leads to normative rather than Positive economic statements.

Normative Economics – Normative Economics – expresses opinions or value judgments. It is concerned with what ought to be and uses words like should,. Ideally, value judgments are involved at the level needs, and too. Ideally, value judgments are involved at the level of policy only. Positive EconomicsNormative Economics 1. In the economy 1. Ought to be in the economy 2. Scientific 2. Value judgment 3. Can be tested3. cannot be tested Straight facts “In my opinion …” Positive economics- deals with straight facts on economic behavior and does not give opinions or value judgments. It is concerned with what is, was, or will be.

Positive or Normative? Answers: 1. N 2. P 3. N 4. P 5. N 6. N 7. N(P?) 1. It is too cold to play football today. 2. Gross Domestic Product grew 4% last year. 3. AP Economics is stupid. 4. The high inflation hurts economic growth. 5. The humidity is too hot. 6. People who are unemployed are just too lazy to work. 7. Stratford High students are crack-heads. NOT After turning me down 3 times, Susie Cool should go out with me.

Other Pitfalls To Sound Economic Reasoning Other Pitfalls To Sound Economic Reasoning Bias – preconceived beliefsnot warranted by facts 1. Bias – preconceived beliefs not warranted by facts. prejudices We tend to accept everything that reinforces our prejudices. We will not learn economics if we reject things before we understand them. Try to understand things Try to understand things first before you reject them. Loaded terminologyemotional terms leading 2. Loaded terminology – use of emotional terms leading to a nonobjective analysis [corporate profits = obscene; G to a nonobjective analysis. [corporate profits = obscene; G regulations = socialists; low wages = exploitation]. objectivity regulations = socialists; low wages = exploitation]. We must have objectivity. Definitions 3. Definitions – certain economic terms have different meanings than normal. Utility A. Utility means satisfaction. Investment B. Investment means purchase of machinery, tools and factories. Price ceilings C. Price ceilings are below equilibrium. Price floors D. Price floors are above equilibrium.

Economists must look at everything objectively bird Is this a leftward-looking bird? anteloperabbit rightward-looking antelope ? Or a rabbit ?

Do You Change Your Mind? Do You Change Your Mind?

Do You Change Your Mind Again?

Fallacy of composition [combining parts into a whole]- 4. Fallacy of composition [combining parts into a whole]-. What is true for the individual/part is not necessarily true for the group/whole. A. The safest way for an individual to leave a burning theater is to run for the nearest exit. “I’ll stand up so I can see better.”

Are There One or Two Shelves?

. Post hoc fallacy 5. Post hoc fallacy – The fallacy that “association or happenstance is causation.” For example; because event “A” precedes event “B”, “A” is the cause of “B”. Ex: Last night I turned the TV on and the Astros were winning 6-3. They ended up losing the game to Colorado. I “jinxed” them

Arnold Before “I’ll be back.” Arnold After “Oh!! My back”

Correlation v. causation 6. Correlation v. causation – because two events. occur together [correlation], they affect each other. Ex 1: Super Bowl Indicator: if an original NFL team [like the Cowboys] win the Super Bowl, the stock market goes up. It has been right over 80% of the time. Wall Street will love this. Ex 2: Hemline Indicator: The higher the skirts, the higher the market [In the roaring 20s, short Flapper dresses were the rage. The longer styles of the 1930s heralded a bear market. Rising stocks in the 60s coincided with the rise of the miniskirt, only to give way in the 70s to more conservative dress lengths and a bear market.

What Cigarettes Do to you! Brother Darrel

Direct ( positive ) Relationship Direct ( positive ) Relationship Independent variable – “induces”(cause) Dependent variable – “responds”(effect) Direct – 2 variables move in same direction. Econ “Econ, Econ”

Inverse(Negative) Relationship Inverse-2 variables move in opposite directions TICKET PRICE (P) ATTENDANCE IN THOUSANDS (Q) $ a b c f e d

Infinite slope: An increase in Y has no effect on X. TICKET PRICE (P) ATTENDANCE IN THOUSANDS (Q) $

Zero slope: An increase in X has no effect on Y. TICKET PRICE (P) ATTENDANCE IN THOUSANDS (Q) $

inversely Which graph shows the amount of “Y” inversely related to the amount of “X”? ____ In which graph above is the amount of “Y” (constant at $10) unrelated unrelated to the increasing amount of “X”? ___ directly In which graph above is the amount of Y directly related to the amount of X? ___ C B A A B C D

The End