1. What Economics Is About
Del Mar College
John Daly
©2002 South-Western Publishing, A Division of Thomson Learning

2. What Economics is About
What is Economics?
What do Economists Study?
Is There an Economic Way of Thinking?
Why Study Economics?
Can the Study of Economics Help Us Understand Our World?

3. Thinking Like an Economist
Scarcity and Effects
Land
Labor
Capital
Entrepreneurship
Utility/Disutility
Rationing Devices
Scarcity and Competition
Opportunity Cost

4. Opportunity Cost
The Higher the opportunity cost of doing something, the less likely it will be done.
Opportunity Costs and the American Revolutionary War
Thinking in Terms of What Would Have Been.

5. What Would Have Been?
Because the new interstate highway system was built, people had to give up the opportunity to buy more clothes, computers, books, and so on. The costs of the interstate highway system seem high. Does it follow that it would have been better if the federal government hadn’t built the new interstate highway system?

6. Decisions & Effects Decisions at the Margin
“Marginal Benefits & Marginal Costs”
Unintended Effects vs. Intended Effects

7. Economics and Statistics
Number Of Accidents
Fatalities Per Accident
Total Number of Fatalities
200,000
0.10
20,000
0.08
16,000
Versus
250,000

8. Q & A What are the four factors of production?
How does competition arise out of scarcity?
Give an Example how a change in opportunity cost can effect behavior.
What do people compare when deciding whether or not to do something?

9. Economists & Theories
A theory is an abstract representation of the world.
A theory emphasizes only those variables that the theorist believes are the critical variables that explain an activity or event.

10. Building and Testing A Theory
Decide on what you want to explain or predict.
Identify important variables
State assumptions of the theory
State the Hypothesis

11. More Theory Building
Test the theory by comparing its predictions against real-world events.
If the evidence supports the theory, reexamine the theory.
If the evidence DOES NOT support the theory, reexamine the theory and collect even more evidence.

12. Even More Theory Building
If the evidence rejects the theory, either revise the theory or amend the variables, assumptions or hypothesis.

13. Q & A What is the purpose of building a theory?
How might a theory of the economy differ from a description of that economy.
Why is it important to test a theory?

14. Scientific Thinking The Association-Causation Issue
The Fallacy of Composition
The Ceteris Paribus Assumption

15. Economic Categories Positive Economics Normative Economics
Microeconomics
Macroeconomics

16. Q & A
Give an example to illustrate how a politician running for office can mislead the electorate by implying association is causation.
Suppose it has been established that if X falls, Y falls. Then one day X falls and Y rises. Does it follow that the old relationship between X and Y no longer holds?

17. Q & A
Your economics instructor says, “If the price of going to the movies goes down, people will go to the movies more often.” A student in class says, “Not if the quality of the movies goes down.” Who is right, the instructor or the student? Why?