🔮 Edy

Introduction to Economics

Micro Economics: Individuals make decisions/allocations of scarce resources. Philosophy of decision making > simplify it into mathematical logic. Often dangerous because you're making models from assumptions which might be wrong.

Macro Economics: What happens in the aggregate of the economy from the millions of individuals who interact with it (questions pertaining policies/taxes/etc) - Top down. Always dangerous because you're making models from assumptions with millions of variables. (Hyperbole, but take every economical (especially macro) model with a grain of salt.)

Economics is not a pure science, like physics or computer science. It has an element of subjectivity which makes it open to interpretation and thus degeneration.

An economist is a man who states the obvious in terms of the incomprehensible

  • Alfred A. Knopf

An economist is a man who will know tomorrow why the things he predicted yesterday didn't happen today

  • Laurence J. Peter

Scarcity

Economics is the study on how to allocate scarce resources.

Scarcity and Rivalry

A scarce resource has potentially unlimited wants from people (desire beyond what is available). Example: oil, land, housing.

Rival good (resource): when one person consume it, it limits the ability for other people to consume it. (simultaneously). Depending on context this can be a rival or non rival good, also depending on the amount of other actors who want to use it.

Four factors of production

  • Land (Natural resources)
  • Labor
  • Capital - something producted → to produce other things (e.g. tools/building/code/knowledge)
  • Entrepeneurship → putting together land/labor/capital to produce things (output)

2 types of products:

  1. capital goods → useful to produce other things (useful goods)
  2. consumptions goods → desired for their own sake because it brings pleasure (pleasurable goods)

Economic Models

Reality → assumptions → abstract simplified explanation

The map is not the territory

Normative Statements vs Positive Statements

  • Normative Statement: value judgement on how things should be. (opinions)
  • Positive Statement: statement on what is/was/will be, without approval or disapproval → based on empirical evidence (verifiable)

Occan's Razor

the logical principle that states you should make no more assumptions than the minimum amount needed to perform analysis; in economics, we use the concept of Occam's razor when we invoke the ceteris paribus assumption.

Ceteris Paribus

A Latin phrase essentially meaning "all else equal", which is used in economics to emphasize the idea that the only changes you should be thinking about are the ones that are explicitly described; for example, if we are talking about how someone reacts to a change in the price of a good, you should assume the only thing changing is price and not preferences, income, or anything else.