FacultyyofyArtsyandySciencesy–yDepartmentyofyEconomicsy
ECONOMICS 211 – SPRING 2025 – RAMZI MABSOUT –
Sections 13 & 16
FinalyReviewyNotes
I- Chaptery1y–yTheyScopeyandyMethodyofyEconomics
1. Defineyeconomics.
Economicsyisytheystudyyofyhowyindividualsyandysocietiesychooseytoyuseytheyscarceyresourcesythatynatureyandypreviousyge
nerationsyhaveyprovided.yInyaysense,yeconomicsyisythey“scientificystudyyofyrationalychoice.”
2. Stateyfouryreasonsyforystudyingyeconomics.
Aystudyyofyeconomicsyhelpsyoneytoylearnyaywayyofythinking,ytoyunderstandysociety,ytoyunderstandyglobalyaffairs,yandy toy
beyanyinformedycitizen.yEssentialytoytheyeconomicywayyofythinkingyisytheyconceptyofy“opportunityycost”—
choicesyinvolveyforgoingysomeyoptions.yTheybestyalternativeythatyweyforgoywhenyweymakeyaychoiceyoryaydecisionyisythey
opportunityycostyofythatydecision.
3. DistinguishybetweenytheyconceptsyofyOpportunityyCostyandyMarginalyCost.
“Marginal”yisyayfrequentlyyusedytermyinyeconomicsythatyisyimportantytoyunderstandyrightyaway.y“Marginal”ymeansy“addit
ional”yory“extra.”y“Marginalycost,”ythen,ymeansy“additionalycost.”ySupposeyyouybuyyaynonreturnable,ynontransferableytic
ketytoytheyzooyfory$10.yThisyisynotyanyadditionalycost.yYou’veypaidywhetheryorynotyyouyvisitythey zoo.
Ifywantsyexceedytheyresourcesytoysatisfyythoseywants,ychoicesymustybeymadeyandysomeyalternativesymustybeyforgone.yIfyy
ouychooseytoyvisitytheyzooythisySaturday,ytheyopportunityycostyisytheyvalueyofytheyactivityyyouywouldyhaveyundertakenyins
tead—thatyis,ytheynextymost-
preferredyactivity.yPerhapsyitymightybeyplayingyayroundyofygolfyory studyingyforyaybigyeconomicsytest.yTheyopportunityyc
ostyofytheytripytoytheyzooyisytheyvalueyyouyattachytoythatyoneyactivityyyouywouldyotherwiseyhaveychosen.
4. Defineymarketyefficiencyyinytermsyofyprofityopportunities.
Theyrapidyeliminationyofyprofityopportunitiesyisyaysignalythatyaymarketyisyoperatingyefficiently.yTheystockymarketyisyaygoo
dyexampleyofythis.yIfyayfirm’systockyisypricedy“tooylow,”yincreasedybiddingywillydriveytheypriceyhigher,yeliminatingytheyex
cessyprofits.yAtyayfarmers’ymarket,yFarmeryBrownymayychargey$1.20yforyaydozenyeggs,yalthoughytheygoingyratey isy$1.00.
ySheymightymakeyexcessyprofitsyforyaywhile,ybutythisywillynotypersistyinyanyefficientymarket.ySustainedyhighyprofitsyindicat
eytheypresenceyofyanyinefficientymarket.
5. Makeyclearytheydifferenceybetweenymicroeconomicyandymacroeconomicyconcern
s.yTHEySCOPEyOFyECONOMTCS:
a) Microeconomicsydealsywithytheyfunctioningyofyindividualymarketsyandyindustriesyandywithytheybehavioryofyindividualyde
cision-makingyunits:ybusinessyfirmsyandyhouseholds.
b) Macroeconomicsy looksy aty they economyy asy ay whole.y Ity dealsy withy they economicy behaviory ofy aggregates-
nationalyoutput,ynationalyincome,ytheyoverallypriceylevel,yandytheygeneralyrateyofyinflation.
c) Economicsy isy ay broady andy diversey discipliney withy manyy specialy fieldsy ofy inquiry.y Thesey includey economicy history,y
internationalyeconomics,yandyurbanyeconomics.
6. Distinguishybetweenypositiveyeconomicsyandynormativeyeconomic
s.yTHEyMETHODyOFyECONOMICS:
a) Economicsyasksyandyattemptsytoyanswerytwoykindsyofyquestions:ypositiveyandynormative.
Positiveyeconomicsyattemptsytoyunderstandybehavioryandytheyoperationyofyeconomiesywithoutymakingyjudg
mentsyaboutywhetherytheyoutcomesyareygoodyorybad.yPositiveyeconomicsyisyoftenydividedyintoytwoyparts.yDe
scriptiveyeconomicsyinvolvesytheycompilationyofydataythatyaccuratelyydescribeyeconomicyfactsyandyevents.yE
conomicytheoryyattemptsytoygeneralizeyandyexplainywhatyisyobserved.yItyinvolvesy statementsyofycauseyandye
ffect-ofyactionyandyreaction.
, Normativeyeconomicsylooksyatytheyresultsyofyeconomicybehavioryandyasksywhetherytheyyareygoodyorybadyand
whetherytheyycanyheyimproved.
y
b) Models:yAnyeconomicymodelyisyayformalystatementyofyanyeconomicytheory.yModelsysimplifyyandyabstractyfromyreality.y
Modelsyandytheoriesycanybeyexpressedyinymanyyways.yTheymostycommonywaysyareyinywords,yinygraphs,yandyinyequations.
7. Explainytheyvalueyofytheyceterisyparibusyassumptionywithinytheycontextyofyeconomicymodeling.
EconomicyModelsyareyoftenyusefulytoyisolateytheyeffectsyofyoneyvariableyonyanotherywhileyholdingy"allyelseyconstant."yTh
isyisytheydeviceyofyceterisyparibus.yInytestingytheyrelationshipsybetweenyvariablesywithinyaymodel,yityisyconvenientytoyassu
meyceterisyparibus:ythatyallyotheryvariablesyhaveybeenyheldyconstant.
8. FallacyyofyComposition
Becauseyoneyeventyhappensybeforeyanother,ytheysecondyeventydoesynotynecessarilyyhappenyasyayresultyofytheyfirst.y Toyass
umeythaty"after"yimpliesy"because"yisytoycommitytheyfallacyyofy“Hoc,yErgoyPropteryHoc”
TheyerroneousybeliefythatywhatyisytrueyforyaypartyisynecessarilyytrueyforytheywholeyisytheyFallacyyofyComposition.
Anyexampleyofytheyfallacyyofycomposition:yOneypersonyatyayfootballygameywhoystandsyupytoyseeyaygoodyplayyderivesyayb
enefit,ythereforeyallywillybenefitysimilarlyyifytheyentireycrowdystandsyup.
9. Stateyandyexplainytheyfourycriteriayusedytoyassessytheyoutcomesyofyeconomicypolicy.
EmpiricalyEconomicsyinvolvesytheycollectionyandyuseyofydataytoytestyeconomicytheories.yInyprinciple,ytheybestymodelyisyt
heyoneythatyyieldsytheymostyaccurateypredictions.yToymakeypolicy,yoneymustybeycarefulytoyspecifyycriteriayforymakingyju
dgments.yFouryspecificycriteriayareyusedymostyoftenyinyeconomics:yEfficiency,yEquity,yGrowth,yandyStability.
10. Constructyandyinterpretybothygraphsyandylinearyequations.
Economicygraphsydepictytheyrelationshipybetweenyvariables.yAycurveywithyay“rising”y(positive)yslopeyindicatesythatyasyon
eyvariableyincreases,ysoydoesytheyother.yAycurveywithyay“falling”y(negative)yslopeyindicatesythatyasyoneyvariableyincreases
yinyvalue,ytheyotherydecreasesyinyvalue.ySlopeyisyeasilyymeasuredybyythey“riseyoveryrun”yformula—
theyextentyofyverticalychangeydividedybyytheyextentyofyhorizontalychange.
Inyeconomics,ygraphsyoftenyfeatureyfinancialyvariablesylikey“price,”y“theyinterestyrate,”yory“income.”yUsuallyytheydepend
entyvariableyisyplacedyonytheyverticalyaxisyandytheyindependentyvariableyonytheyhorizontalyaxis.yWheny graphingyeconomi
cyvariables,yit’syayprettyysafeybetythatytheyfinancialyvariableywillygoyonytheyverticalyaxisyeveryytime.
11. Lexicon
CeterisyParibus Allyelseyremainingyequal.yAydeviceyusedytoyanalyzeytheyrelationshipybetweenytwoyvariablesy w
hileytheyvaluesyofyotheryvariablesyareyheldyunchanged.
DescriptiveyEconomics Theycompilationyofydataythatydescribeyphenomenayandyfacts.
EconomicyGrowth Anyincreaseyinytheytotalyoutputyofyanyeconomy.
EconomicyTheory Aystatementyorysetyofyrelatedystatementsyaboutycauseyandyeffect,yactionyandyreaction.
Economics Theystudyyofyhowyindividualsyandysocietiesychooseyhowytoyuseytheyscarceyresourcesythaty natu
reyandypreviousygenerationsyhaveyprovided.
Efficiency Iny economics,y “Allocativey Efficiency”.y Any efficienty economyy isy oney thaty producesy whaty
peopleywantyatytheyleastypossibleycost.
EfficientyMarket Aymarketyinywhichyprofityopportunitiesyareyeliminatedyalmostyinstantaneously.
EmpiricalyEconomics Theycollectionyandyuseyofydataytoytestyeconomicytheories.
Equity Fairness
FallacyyofyComposition Theyerroneousybeliefythatywhatyisytrueyforyaypartyisynecessarilyytrueyforytheywhole.
IndustrialyRevolution TheyperiodyinyEnglandyduringytheylateyeighteenthyandyearlyynineteenthycenturiesyinywhichy n
ewymanufacturingytechnologiesyandyimprovedytransportationygaveyriseytoytheymoderny facto
ryysystemyandyaymassiveymovementyofytheypopulationyfromytheycountrysideytoythey cities.
Pagey2yofy83
, Macroeconomics Theybranchyofyeconomicsythatyexaminesytheyeconomicybehaviory ofy aggregates,yincome,y em
ployment,youtput,yandysoyon;yallyonyaynationalyscale.
Marginalism They processy ofy analyzingy they additionaly ory incrementaly costsy ory benefitsy arisingy fromy ay c
hoiceyorydecision.
Microeconomics TheybranchyofyeconomicsythatyexaminesytheyfunctioningyofyIndividualyindustriesyandythey be
havioryofyIndividualydecision-makingyunits·yThatyisyfirmsyandyhouseholds.
Model Ay formaly statementy ofy ay theory.y Usuallyy ay mathematicaly statementy ofy ay presumedy rel
ationshipybetweenytwoyorymoreyvariables.
NormativeyEconomics Anyapproachytoyeconomicsythatyanalyzesyoutcomesyofyeconomicybehavior,yevaluatesythemy as
ygoodyorybad,yandymayyprescribeycoursesyofyaction.yAlsoycalledypolicyyeconomics.
Ockham'syrazor Theyprincipleythatyirrelevantydetailyshouldybeycutyaway.
OpportunityyCost Theybestyalternativeythatyweyforgo,yorygiveyup,ywhenyweymakeyaychoiceyoryaydecision.
PositiveyEconomics Any approachy toy economicsy thaty seeksy toy understandy behaviory andy they operationy ofy sy
stemsywithoutymakingyjudgments.yItydescribesywhatyexistsyandyhowyityworks.
PostyHoc,yErgoyPropteryHoc Literally,y"afterythisy(inytime),ythereforeybecauseyofythis."yAycommonyerrorymadeyiny chinki
ngyaboutycausation:yIfyEventyAyhappensybeforeyEventyB,yityisynotynecessarilyytrueythaty Ayca
usedyB.
Scarce Limited
Stability Ay conditiony iny whichy nationaly outputy isy growingy steadily,y withy lowy inflationy andy fully
employmentyofyresources.
SunkyCosts Costsythatycannotybeyavoidedybecauseytheyyhaveyalreadyybeenyincurred.
Variable Aymeasureythatycanychangeyfromytimeytoytimeyoryfromyobservationytoyobservation.
12. GraphicsyLexicony(Appendix):
CartesianyCoordinateySystem Aycommonymethodyofygraphingytwoyvariablesythatymakesyuseyofytwoyperpendicularylinesy a
gainstywhichytheyvariablesyareyplotted.
Graph Aytwo-dimensionalyrepresentationyofyaysetyofynumbersyorydata.
NegativeyRelationship Ayrelationshipybetweenytwoyvariables,yXyandyY,yinywhichyaydecreaseyinyXyisyassociatedy w
ithyanyincreaseyinyYyandyanyincreaseyinyXyisyassociatedywithyaydecreaseyinyY.
Origin OnyayCartesianycoordinateysystem,ytheypointyatywhichytheyhorizontalyandyverticalyaxesy inter
sect.
PositiveyRelationship Ayrelationshipybetweenytwoyvariables,yXyandyY,yinywhichyaydecreaseyinyXy isyassociatedy
withyaydecreaseyinyYyandyanyincreaseyinyXyisyassociatedywithyanyincreaseyinyY.
Slope Aymeasurementythatyindicatesywhetherytheyrelationshipybetweenyvariablesyisypositiveyory n
egativeyandyhowymuchyofyayresponseythereyisyinyYy(theyvariableyonytheyverticalyaxis)y whe
nyXy(theyvariableyonytheyhorizontalyaxis)ychanges.
TimeySeriesyGraph Aygraphyillustratingyhowyayvariableychangesyoverytime.
X-Axis Ony ay Cartesiany coordinatey system,y they horizontaly liney againsty whichy ay variabley isy p
lotted.
X-Intercept TheypointyatywhichyaygraphyintersectsytheyX-Axis.
Y-Axis OnyayCartesianycoordinateysystem,ytheyverticalylineyagainstywhichyayvariableyisyplotted.
Y-Intercept TheypointyatywhichyaygraphyintersectsytheyY-Axis.
Pagey3yofy83
, II- Chaptery2y–yTheyEconomicyProblem:yScarcityyandyChoice
1. Identifyytheythreeybasicyeconomicyquestions.
Everyysocietyyhasysomeysystemyoryprocessyforytransformingyintoyusefulyformywhatynatureyandypreviousygenerationsyhaveyp
rovided.yEconomicsyisytheystudyyofythatyprocessyandyitsyoutcomes.
Producersy arey thosey whoy takey resourcesy andy transformy themy intoy usabley products,y ory outputs.y Privatey firms,yhouse
holds,yandygovernmentsyallyproduceysomething.
Ally societiesy musty answery threey basicy questions:y Whaty getsy produced?y Howy isy ity produced?
y Whoy getsy whaty isyproduced?yTheseythreeyquestionsymakeyupytheyEconomicyProblem.
Inyaycomplexysociety,ytheyopportunityytoycooperateyandyspecializeyoffersygreatyscopeyforyincreasedyproduction—
butydecisionsymustybeymadeyregardingytheyextentyofycooperation,ywhoyspecializesyinywhat,yandyhowygoodsyareydistribute
d.yEvenyRobinsonyCrusoeyandyFridayyonytheiryhypotheticalyislandymustycomeyupywithyanswersytoytheseyquestions.yWants
yareylimitless,ybutyresourcesyareyscarce.yWeyareycompelledytoymakeychoices.yWhenyaysocietyy consistsyofymoreythanyoney
person,yquestionsyofydistribution,ycooperation,yandyspecializationyarise.
Becauseyresourcesyareyscarceyrelativeytoyhumanywantsyinyallysocieties,yusingyresourcesytoyproduceyoneygoodyoryserviceyi
mpliesynotyusingythemytoyproduceysomethingyelse.yThisyconceptyofyOpportunityyCostyisycentralytoyanyunderstandingyofye
conomics.yConstrainedychoiceyoccurs,y foryexample,y whenyyouygoy toytheygroceryystoreywithyonlyya
$20ybillyinyyourypocket—
youyhaveytoymakeychoicesybasedyonythisylimitation.yUnconstrainedychoiceywouldybeyifyyouywereyallowedytoytakeyasyman
yygroceriesyhomeyasyyouywanted,yfreeyofycharge.ySadly,ythough,yweyknowythere’sy“noysuchythingyasyayfreeylunch.”
Practicalyexamplesyofytheyconsequencesyandycostsyofychoiceyinclude:ypresentyvs.yfutureybenefitsy(doyyouystudyyhardynow
ysoythatyatyexamytimeyreviewingyisyeasier,yorydoyyouytakeyityeasyynowyandysweatyitybeforeytheyexam?),yandycapitalyvs.ycon
sumeryproductiony(shouldyweyproduceytaxicabsyorysportsycars?).yUsingyresourcesytoyproduceycapitalythatywilly inyturnypr
oduceybenefitsyinytheyfutureyimpliesynotyusingythoseyresourcesytoyproduceyconsumerygoodsyinytheypresent.
Toycalculateyopportunityycost,yuseythey“giveyupytoyget”yapproach.yIfyyouycanydetermineywhaty(next-
best)ychoiceywasyforgoneytoygetyyourypreferredyselection,yyouyhaveydeterminedyopportunityycost.yThisyisymostyclearlyyse
enyasyaymovementyalongyayproductionypossibilityyfrontier.
2. Absolutey Advantagey andy Comparativey Advantage.y Relatey Comparativey Advantagey toy they theoryy thaty individualsy
canygainyfromyspecializationyandyexchange.
AyproduceryhasyanyabsoluteyadvantageyinytheyproductionyofyGoodyAyif,ycomparedywithyanotheryproducer,yheycanyproduc
eyGoodyAymoreyefficiently.yAyproduceryhasyaycomparativeyadvantageyinytheyproductionyofyGoodyAyif,y comparedywithya
notheryproducer,yheycanyproduceyGoodyAyatyayloweryopportunityycost.
Specializationyandytradeybasedyonycomparativeyadvantageyletsyeachyparticipantyachieveyayhigheryconsumptionylevelythan
ywouldyotherwiseybeypossible.yEachyparticipantycanyliveyoutsideytheyconstraintsyofyhisyownyproductionyopportunities.
Evenyifyoneyindividualyorynationyisyabsolutelyymoreyefficientyatyproducingygoodsythanyanother,yallypartiesywillygainyifythe
yyspecializeyinyproducingygoodsyinywhichytheyyhaveyaycomparativeyadvantage.
Comparativeyadvantageyhingesyonytheyconceptyofyopportunityycost.yTheyproducery(person,yfirm,yorycountry)ywithytheylo
westyopportunityycostyholdsytheycomparativeyadvantageyinythatyproduct.yDon’tybeymisled—
ityisyirrelevantytoycomparativeyadvantageywhetheryory notytheyproducery canyproducey moreyofy theygood.yTheyissueyrevolv
esyaroundythe
Pagey4yofy83
ECONOMICS 211 – SPRING 2025 – RAMZI MABSOUT –
Sections 13 & 16
FinalyReviewyNotes
I- Chaptery1y–yTheyScopeyandyMethodyofyEconomics
1. Defineyeconomics.
Economicsyisytheystudyyofyhowyindividualsyandysocietiesychooseytoyuseytheyscarceyresourcesythatynatureyandypreviousyge
nerationsyhaveyprovided.yInyaysense,yeconomicsyisythey“scientificystudyyofyrationalychoice.”
2. Stateyfouryreasonsyforystudyingyeconomics.
Aystudyyofyeconomicsyhelpsyoneytoylearnyaywayyofythinking,ytoyunderstandysociety,ytoyunderstandyglobalyaffairs,yandy toy
beyanyinformedycitizen.yEssentialytoytheyeconomicywayyofythinkingyisytheyconceptyofy“opportunityycost”—
choicesyinvolveyforgoingysomeyoptions.yTheybestyalternativeythatyweyforgoywhenyweymakeyaychoiceyoryaydecisionyisythey
opportunityycostyofythatydecision.
3. DistinguishybetweenytheyconceptsyofyOpportunityyCostyandyMarginalyCost.
“Marginal”yisyayfrequentlyyusedytermyinyeconomicsythatyisyimportantytoyunderstandyrightyaway.y“Marginal”ymeansy“addit
ional”yory“extra.”y“Marginalycost,”ythen,ymeansy“additionalycost.”ySupposeyyouybuyyaynonreturnable,ynontransferableytic
ketytoytheyzooyfory$10.yThisyisynotyanyadditionalycost.yYou’veypaidywhetheryorynotyyouyvisitythey zoo.
Ifywantsyexceedytheyresourcesytoysatisfyythoseywants,ychoicesymustybeymadeyandysomeyalternativesymustybeyforgone.yIfyy
ouychooseytoyvisitytheyzooythisySaturday,ytheyopportunityycostyisytheyvalueyofytheyactivityyyouywouldyhaveyundertakenyins
tead—thatyis,ytheynextymost-
preferredyactivity.yPerhapsyitymightybeyplayingyayroundyofygolfyory studyingyforyaybigyeconomicsytest.yTheyopportunityyc
ostyofytheytripytoytheyzooyisytheyvalueyyouyattachytoythatyoneyactivityyyouywouldyotherwiseyhaveychosen.
4. Defineymarketyefficiencyyinytermsyofyprofityopportunities.
Theyrapidyeliminationyofyprofityopportunitiesyisyaysignalythatyaymarketyisyoperatingyefficiently.yTheystockymarketyisyaygoo
dyexampleyofythis.yIfyayfirm’systockyisypricedy“tooylow,”yincreasedybiddingywillydriveytheypriceyhigher,yeliminatingytheyex
cessyprofits.yAtyayfarmers’ymarket,yFarmeryBrownymayychargey$1.20yforyaydozenyeggs,yalthoughytheygoingyratey isy$1.00.
ySheymightymakeyexcessyprofitsyforyaywhile,ybutythisywillynotypersistyinyanyefficientymarket.ySustainedyhighyprofitsyindicat
eytheypresenceyofyanyinefficientymarket.
5. Makeyclearytheydifferenceybetweenymicroeconomicyandymacroeconomicyconcern
s.yTHEySCOPEyOFyECONOMTCS:
a) Microeconomicsydealsywithytheyfunctioningyofyindividualymarketsyandyindustriesyandywithytheybehavioryofyindividualyde
cision-makingyunits:ybusinessyfirmsyandyhouseholds.
b) Macroeconomicsy looksy aty they economyy asy ay whole.y Ity dealsy withy they economicy behaviory ofy aggregates-
nationalyoutput,ynationalyincome,ytheyoverallypriceylevel,yandytheygeneralyrateyofyinflation.
c) Economicsy isy ay broady andy diversey discipliney withy manyy specialy fieldsy ofy inquiry.y Thesey includey economicy history,y
internationalyeconomics,yandyurbanyeconomics.
6. Distinguishybetweenypositiveyeconomicsyandynormativeyeconomic
s.yTHEyMETHODyOFyECONOMICS:
a) Economicsyasksyandyattemptsytoyanswerytwoykindsyofyquestions:ypositiveyandynormative.
Positiveyeconomicsyattemptsytoyunderstandybehavioryandytheyoperationyofyeconomiesywithoutymakingyjudg
mentsyaboutywhetherytheyoutcomesyareygoodyorybad.yPositiveyeconomicsyisyoftenydividedyintoytwoyparts.yDe
scriptiveyeconomicsyinvolvesytheycompilationyofydataythatyaccuratelyydescribeyeconomicyfactsyandyevents.yE
conomicytheoryyattemptsytoygeneralizeyandyexplainywhatyisyobserved.yItyinvolvesy statementsyofycauseyandye
ffect-ofyactionyandyreaction.
, Normativeyeconomicsylooksyatytheyresultsyofyeconomicybehavioryandyasksywhetherytheyyareygoodyorybadyand
whetherytheyycanyheyimproved.
y
b) Models:yAnyeconomicymodelyisyayformalystatementyofyanyeconomicytheory.yModelsysimplifyyandyabstractyfromyreality.y
Modelsyandytheoriesycanybeyexpressedyinymanyyways.yTheymostycommonywaysyareyinywords,yinygraphs,yandyinyequations.
7. Explainytheyvalueyofytheyceterisyparibusyassumptionywithinytheycontextyofyeconomicymodeling.
EconomicyModelsyareyoftenyusefulytoyisolateytheyeffectsyofyoneyvariableyonyanotherywhileyholdingy"allyelseyconstant."yTh
isyisytheydeviceyofyceterisyparibus.yInytestingytheyrelationshipsybetweenyvariablesywithinyaymodel,yityisyconvenientytoyassu
meyceterisyparibus:ythatyallyotheryvariablesyhaveybeenyheldyconstant.
8. FallacyyofyComposition
Becauseyoneyeventyhappensybeforeyanother,ytheysecondyeventydoesynotynecessarilyyhappenyasyayresultyofytheyfirst.y Toyass
umeythaty"after"yimpliesy"because"yisytoycommitytheyfallacyyofy“Hoc,yErgoyPropteryHoc”
TheyerroneousybeliefythatywhatyisytrueyforyaypartyisynecessarilyytrueyforytheywholeyisytheyFallacyyofyComposition.
Anyexampleyofytheyfallacyyofycomposition:yOneypersonyatyayfootballygameywhoystandsyupytoyseeyaygoodyplayyderivesyayb
enefit,ythereforeyallywillybenefitysimilarlyyifytheyentireycrowdystandsyup.
9. Stateyandyexplainytheyfourycriteriayusedytoyassessytheyoutcomesyofyeconomicypolicy.
EmpiricalyEconomicsyinvolvesytheycollectionyandyuseyofydataytoytestyeconomicytheories.yInyprinciple,ytheybestymodelyisyt
heyoneythatyyieldsytheymostyaccurateypredictions.yToymakeypolicy,yoneymustybeycarefulytoyspecifyycriteriayforymakingyju
dgments.yFouryspecificycriteriayareyusedymostyoftenyinyeconomics:yEfficiency,yEquity,yGrowth,yandyStability.
10. Constructyandyinterpretybothygraphsyandylinearyequations.
Economicygraphsydepictytheyrelationshipybetweenyvariables.yAycurveywithyay“rising”y(positive)yslopeyindicatesythatyasyon
eyvariableyincreases,ysoydoesytheyother.yAycurveywithyay“falling”y(negative)yslopeyindicatesythatyasyoneyvariableyincreases
yinyvalue,ytheyotherydecreasesyinyvalue.ySlopeyisyeasilyymeasuredybyythey“riseyoveryrun”yformula—
theyextentyofyverticalychangeydividedybyytheyextentyofyhorizontalychange.
Inyeconomics,ygraphsyoftenyfeatureyfinancialyvariablesylikey“price,”y“theyinterestyrate,”yory“income.”yUsuallyytheydepend
entyvariableyisyplacedyonytheyverticalyaxisyandytheyindependentyvariableyonytheyhorizontalyaxis.yWheny graphingyeconomi
cyvariables,yit’syayprettyysafeybetythatytheyfinancialyvariableywillygoyonytheyverticalyaxisyeveryytime.
11. Lexicon
CeterisyParibus Allyelseyremainingyequal.yAydeviceyusedytoyanalyzeytheyrelationshipybetweenytwoyvariablesy w
hileytheyvaluesyofyotheryvariablesyareyheldyunchanged.
DescriptiveyEconomics Theycompilationyofydataythatydescribeyphenomenayandyfacts.
EconomicyGrowth Anyincreaseyinytheytotalyoutputyofyanyeconomy.
EconomicyTheory Aystatementyorysetyofyrelatedystatementsyaboutycauseyandyeffect,yactionyandyreaction.
Economics Theystudyyofyhowyindividualsyandysocietiesychooseyhowytoyuseytheyscarceyresourcesythaty natu
reyandypreviousygenerationsyhaveyprovided.
Efficiency Iny economics,y “Allocativey Efficiency”.y Any efficienty economyy isy oney thaty producesy whaty
peopleywantyatytheyleastypossibleycost.
EfficientyMarket Aymarketyinywhichyprofityopportunitiesyareyeliminatedyalmostyinstantaneously.
EmpiricalyEconomics Theycollectionyandyuseyofydataytoytestyeconomicytheories.
Equity Fairness
FallacyyofyComposition Theyerroneousybeliefythatywhatyisytrueyforyaypartyisynecessarilyytrueyforytheywhole.
IndustrialyRevolution TheyperiodyinyEnglandyduringytheylateyeighteenthyandyearlyynineteenthycenturiesyinywhichy n
ewymanufacturingytechnologiesyandyimprovedytransportationygaveyriseytoytheymoderny facto
ryysystemyandyaymassiveymovementyofytheypopulationyfromytheycountrysideytoythey cities.
Pagey2yofy83
, Macroeconomics Theybranchyofyeconomicsythatyexaminesytheyeconomicybehaviory ofy aggregates,yincome,y em
ployment,youtput,yandysoyon;yallyonyaynationalyscale.
Marginalism They processy ofy analyzingy they additionaly ory incrementaly costsy ory benefitsy arisingy fromy ay c
hoiceyorydecision.
Microeconomics TheybranchyofyeconomicsythatyexaminesytheyfunctioningyofyIndividualyindustriesyandythey be
havioryofyIndividualydecision-makingyunits·yThatyisyfirmsyandyhouseholds.
Model Ay formaly statementy ofy ay theory.y Usuallyy ay mathematicaly statementy ofy ay presumedy rel
ationshipybetweenytwoyorymoreyvariables.
NormativeyEconomics Anyapproachytoyeconomicsythatyanalyzesyoutcomesyofyeconomicybehavior,yevaluatesythemy as
ygoodyorybad,yandymayyprescribeycoursesyofyaction.yAlsoycalledypolicyyeconomics.
Ockham'syrazor Theyprincipleythatyirrelevantydetailyshouldybeycutyaway.
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Variable Aymeasureythatycanychangeyfromytimeytoytimeyoryfromyobservationytoyobservation.
12. GraphicsyLexicony(Appendix):
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Pagey3yofy83
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