ECON 110 Lecture 2 Outline of Lecture 1I. Ten Basic Principles of Economicsa. Tradeoffsb. Opportunity Costsc. Comparing in the Margind. Incentivese. Trade can help everyonef. Markets help organize the economyg. Governments can improve marketsh. A country’s quality of living depends on its available resourcesi. Inflation is caused by the overprinting of moneyj. Society has to balance between inflation and unemploymentII. Other Big Ideasa. Scarcityb. Choicesc. DecisionsOutline of Current Lecture I. The Language of Economicsa. Scarcityb. Choicec. TradeoffsII. The Economic Approacha. The Scientific Methodb. The StepsIII. Economic Modelsa. How to build themb. ExamplesCurrent Lecture – Thinking Like an EconomistSince economics is a complete field of study, economists have their own sets of vocabulary, methods, and ways of communicating information. We need to familiarize ourselveswith these ways in order to study economics.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.We have already been looking a lot at the language of economics: words such as scarcity,tradeoffs, decision, opportunity cost, incentives, and choice. It is important to remain familiar with these terms, and as you go through the reading to make sure to look up and define other terms with which you are unfamiliar.The economic approach of study can be compared to the scientific method (hypothesis, experimentation, analysis, and lastly either the hypothesis becomes a theory, or one must create a new hypothesis.) - In economics, first we observe patterns or phenomena.- Based on those observations, we develop an explanation, or an economic theory. - Lastly we build a model, which we then test and analyze to either strengthen or disproveour theory. Economic models are the graphs, charts, and diagrams with which economists organize and demonstrate economic information. Some examples include Circular Flow charts and Production Possibilities Frontiers (both to be discussed in the next lecture.) To build an economic model, we first have to make realistic assumptions on which to base the model. Next we test the model by gathering and analyzing data. From that data we generate results, and upon evaluation of the results can adjust the
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