1. Introduction to Economic Data Analysis with Gretl
Ralf Y. Lin |林悦辰
04/17/2011

2. Pre-lecture Survey

3. Pre-lecture Survey
Tell me what you already have in mind about the content in the 2 hour course.
A breakdown about what economics are all about
More detail with economics, analyzing and interpreting economic data.

4. Agenda What is economics all about? How to learn economics?
Economic Data Analysis with Gretl
Conclusion

5. What is economics all about?
Introduction to Economic Data Analysis with Gretl

6. Definition of Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services.

7. What Economics is all about?
The supply of mint chocolate cream was gone because it was in high demand (wanted) by many customers. Look at the chart on the left to see what flavors are in supply at “Bubba’s Ice Cream”.

8. There was a scarcity of cones at Bubba’s
There was a scarcity of cones at Bubba’s. Scarcity means that there are limited resources, and therefore, people must make choices. Look at the pictures on the right. Which pictures show a scarcity? 1) 2) 3)

9. What are producers and consumers?
The two children in this example are consumers. A consumer is anyone who buys a good or a service.
The toy store owner in this example is a producer. A producer is anyone who makes or grows a good or performs a service.

10. What is opportunity cost?
Andy had $65.00 to spend at the toy store. The basketball net cost $50.00, so he had to buy that instead of the skateboard, which cost $75.00.
Sara had enough money for either the rabbit or the bike. She decided to buy the bike because then she could ride bikes with her friends after school.

11. Opportunity Costs Purchases
Opportunity cost is the process of choosing one good or service over another. The item that you don’t pick is the opportunity cost. The rabbit is Sara’s opportunity cost and the skateboard is Andy’s opportunity cost.

12. What is a profit?
What Andy didn’t realize when he bought his basketball net was that the toy store owner made a large profit off of the sale. The toy store owner spent $30.00 to make the basketball net. Andy bought it for $ The toy store owner made a profit of $20.00.

13. What is a loss?
The toy store owner lost money when Sara purchased the bike. The owner made the bike for $80.00, but sold it to Sara for only $ The toy store owner lost $15.00.

14. After the children left the toy store I decided to stay and have a look around. In the front of the store there was a magnificent toy car.
“Wow”, I exclaimed, “what a neat car! Did you make it yourself?” The toy store owner explained that it was designed by a car company, put together by Mattel, a toy company, and painted by himself. “Painting is my specialty”, he said.

15. What is specialization?
The toy store owner counted on others to do the necessary work to construct the toys he sold, but then he would paint the toys himself. Specialization is when an individual or a company specializes in doing one part of a task, and relies on others to complete the other parts.

16. What is interdependence?
Interdependence is when people depend on one another. Specialization results in interdependence.

17. Introduction to Economic Data Analysis with Gretl
How to learn economics?
Introduction to Economic Data Analysis with Gretl

18. Economics Normative Economics Empirical Economics
part of economics that expresses value judgments (normative judgements) about economic fairness or what the economy ought to be like or what goals of public policy ought to be
Empirical Economics
the branch of economics that concerns the description and explanation of economic phenomena

19. Normative Economics Is the model setup natural?
Does it captures the important features of the problem?
Key, or simplifying, or technical assumptions?
Logic of the analysis?
Does the result make sense?

20. Example: Bertrand competition
Model:
Two enterprises…
Cost: c1=c2=c=2
100 consumers, each would love to pay $10 to buy a product
Price is up to each enterprise
Consumer buys the cheaper one.
Analysis:
If the price of the product from enterprise 1 is $8, that from enterprise 2 is $5. So all consumers would buy products from enterprise 2. Then the sales and profit from enterprise 1 are, while profit of enterprise 2 is .
Enterprise 1 should lower its price…at least lower than $5.
Enterprise 2 would follow on lowering the price.
Eventually p1=p2=c=2
Conclusion:
Equilibrium: Price=Cost, Profit=0
Complete Competition!

21. Example: Bertrand competition
Main Idea: Price wars lead to the elimination of monopoly, making a more efficient distribution of resources.
Simplifying assumptions:
What if there are multiple enterprises?
Demand: D(p)=120 – 10p
Different Costs: c1= 2, c2=2.1
P1=2.1.
Market Structure: Monopoly!
Implications for anti-trust laws: Count of enterprises and market share can be misleading indicators!

22. Empirical Economics
Run economic data, find the implications behind the economic data.
Run regressions!!!

23. Economic Data Analysis
Introduction to Economic Data Analysis with Gretl

24. Economic Data Analysis
Normal Distribution
Regression
T-test

25. The Normal Distribution
f(X)
Changing μ shifts the distribution left or right.
Changing σ increases or decreases the spread. σ μ X

26. 68-95-99.7 Rule 68% of the data 95% of the data 99.7% of the data
SAY: within 1 standard deviation either way of the mean
within 2 standard deviations of the mean
within 3 standard deviations either way of the mean
WORKS FOR ALL NORMAL CURVES NO MATTER HOW SKINNY OR FAT
95% of the data
99.7% of the data

29. Conclusion
Review for what we have covered…
Student Survey