1. Economics Defined Review   7/2/24

I. Basic Terms
 A. Economy: social science concerned with the use of scarce resources like land and labor to fulfill unlimited human.
B. Resources are the inputs, want satisfaction is the output 
C. Key Concepts for understanding and analysis
   1. Scarcity of resources requires choices by participants.
   2. Purposeful behavior by participants (buyers and sellers) is
       exhibited to enhance their own rational self interest.
   3. Marginal analysis: the change in benefit received is balanced
       with the change in cost is a common purposeful behavior.
   4. Fallacy of composition: applying to the whole that which is true for
       a part without adequate proof. 1 and 3 are odd numbers, so four is
       odd number. This fallacy is the basis of police profiling.
   5. Fallacy of division: assumption that if something is true for the
       whole then it must be true for its parts. The worst abuse here
       involves inferring from an average that all elements are average.
   6. Post hoc fallacy: Assumption that correlation proves causation.  
       This is related to the concept in law of circumstantial evidence.
   7. Cum Hoc Fallacy:simultaneous correlations while post hoc
       refers to sequential correlations.  

D. Economic methodology 
    1. Positive economics 
        a. What something is 
        b. Objective, can be measured
        c. Example: measuring disposable personal income which
            is an individual's salary after taxes
        d. A Theorem on the Methodology of  Positive Economics
    2. Normative economics
       a. What something ought to be 
       b. Subjective, difficult to measure 
       c. Requires value judgments by citizens, Political Action
           Committees (PAC's), politicians, economists, etc.
      d. Examples: should the minimum wage be increased, should
          defense spending increase and social spending be lowered
  3. Descriptive economics
      a. Looking at the real-world to develop Economic Theory
      b. Economic Theory
          1. Generalizations concerning economic behavior based upon
              real-world observations, empirical by nature
          2. Economic theories are objective "positive economics"
          3. Assumes rational, economic self-serving behavior
          4. Example: as the price of a product increases, consumers
              tend to buy less
     c. Economic Policy
         1. Application of economic theory to solve economic problems
         2. Economic policies are subjective, "normative economics".
         3. How society makes economic choices as in the 1980's when
             a. spending for the elderly (Social Security) increased 
             b. spending for children (Head Start) decreased 1234

II. Economic Models
  A. Definition
    1. Simplified generalizations to represent of real-
              world economic activity
         2. Requires Ceteris Paribus: Latin for holding
              other economic variables constant
              See Ceteris Paribus Trap
   B. Designing Models
       1. Models may be quantities or qualitative
       2. Economic Models
       3. Three Pitfalls to model analysis 
       a. Restrictive, unrealistic assumptions 
        b. Omitted details  
        c. Are economic models falsifiable?
    C.. Model representations are not always correct
        Models such as the Production Possibility
            Curve chapter 2 and supply  and demand,
            chapter 3, explained in the next chapter
            provide a simplified description of how some
           aspect of an economy works.

Macroeconomics is the study of total economic activity. Macro Activity
1. Inflation rate
2. Economic growth
3. Total employment
4. The  business cycle

Microeconomics s the study of individual segments
 of the economy.
Micro Activity
1. A product's price
2. Pollution
3. Poverty
4. A competitive market