Lecture 1
INTRODUCTION

A. What is Economics about?

• Allocation of scarce resources to meet human needs

B. Difference between macro- and micro-economics

Macro
• Issues that deal with the economy as a whole
• GDP, inflation, unemployment, interest rates

Micro

• Issues at the level of individual agents
• Decision-making by consumers and firms

C. Value judgements in policy making

• Positive economics
  "What is"

• Normative economics
  "What ought to be"

D. Economic modelling

Step 1: Start with reasonable assumptions (usually based on observed data)

Step 2: Create a model that describes economic behavior of agents

Step 3: Generate hypotheses using the model

Step 4: Test the hypotheses using actual data

E. Two fallacies in Economics

1. Fallacy of composition
   • "What is true for the part is true for the whole"
     
   • Should be careful about generalizing

2. Post hoc, ergo propter hoc (Post hoc fallacy)
   • "After this, therefore because of this"
     
   • Should be careful about cause and effect
   • Correlation and causation

F. Ceteris Paribus

• Other things remaining equal