ECN 203 1nd Edition Lecture 1 Outline of Current Lecture II. Opportunity Cost III. Assumptions a. Making a Model b. Strong Assumptionsc. Weak AssumptionsIV. Relaxing AssumptionsV. Ceteris Paribus Current Lecture1.0 Introduction - Opportunity Cost: the best forgone option. It is the price you “paid” for your choiceo We face this cost due to scarcity o Time is the ultimate scarcity - Assumptions o allows the scientist to abstract from the complication of changes in those surrounding conditions Made in order to make analysis manageable o Making a Model Two source problems:- 1. Ideological bias- 2. Lack of care in construction Problems enter a model as terms are defined and arranged. Assumptions are introduced. Keep your eye out for the assumptions in the model. The ultimate strength of model depends on the sturdiness of its foundation, assumptions form foundation These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.o Systematic abstractions from reality o Strong Assumptions Abstracts significantly from what is considered reality. In effect, strong assumption holds a lot of reality at bay o Weak Assumptions More realistic Does not hold much reality at bay. o A model constructed on strong assumptions is less credible than weak assumptions. The weaker the model’s assumptions, the stronger is the model’s foundation - Relaxing Assumptions o Starting with strong assumptions is easy, but unrealistic o To relax an assumption: to move from a stronger to a weaker assumption, to move from what is perceived as less to a more realistic set of conditions o Each time we relax an assumption we define more terms to deal with growing complexity - Ceteris Paribus o Other things being equal o As the model develops, we will try to be explicit with what we are assuming but sometimes we will say, ceteris
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