module 1/2- what is economics? by: j.a.sacco. what is economics? what is economics? choices!!!
Post on 02-Jan-2016
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What Is Economics?• Compile a list of five goods/services you have bought in
the last 2 days?• What choices did you make in purchasing those goods
and services?• What choices were economic?
The Economic Person: Rational Self-Interest
• Economics is based on the belief that individuals act as if motivated by self-interest and respond to opportunity for gain.
“People do what is in their own best interests”
“Rationality Assumption”• People will not intentionally make decisions that would leave
them worse off.
People respond to rewards called INCENTIVES!!
Why are INCENTIVES important?
Economics as a Science?
• Models in Economics
An economic model doesn’t need to be an exact replica/just needs to be realistic!
Models and Assumptions• Assumptions are a shorthand for reality.• Models must be based on a set of assumptions---Makes
the model valid!
“Ceteris Paribus Assumption”?• Once we believe the model is a valid representation of the
world, it can predict real world phenomena.
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