Econ 202 1st Edition Lecture 2 Outline of Last Lecture I Intro to Econ A Definition of economics B Questions economist discuss C Difference between microeconomics and macroeconomics II The 10 Principles of Economics Outline of Current Lecture I The 10 Principles of Economics continue II Thinking like an economist a Steps to follow in analysis III Examples Current Lecture I The 10 Principles of Economics Continue a Principle 6 Markets are usually good ways of organizing economic activity i Central authority 1 Ex Soviet Union group of guys got together and decided what to make ii Markets are a group of buyers and sellers of particular good or service iii Market economy an economy composed of markets prices organize economic activity decide what is going to be made iv Prices allocate resources b Principle 7 government can sometimes improve outcomes i Reason for governments involvement in market 1 Efficiency a Market failure i Monopoly one seller of a good high prices 2 Equality Fairness a Ex hail insurance for crops b Ex 2 federal income tax II Thinking like an economist Trying to use scientific methods in analysis a Steps to follow in analysis i Make observations about economic activity ii Develop a model which seeks to provide insights into those observations 1 Making assumptions 2 Models should have testable implications iii Going into the real world and test the models implications III Examples a Step 1 making observations can be a question or a statement i Ex 1 used cars Why do used cars always seem bad ii Ex 2 crab harvesting in Chesapeake Bay Why do they harvest until noting is left b Step 2 develop model assumptions i Assumptions models must 1 Captures essences of what is going on a Ex 1 used cars one partyof the transaction has better information about the object of the transaction than the other b Ex 2 crab harvesting each harvester s action adversely affect other harvesters if one get more the other will try to get even more than what the first person collected 2 get rid of irrelevant factors c Step 3 test theory in real world i Develop a way to test the theories that you come up with 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