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The Economic Approach

The Economic Approach. Chapter 1 Week 1. Macro Economy as a whole. growth of total output, inflation, employment. Micro Markets considered separately. Representative topics: specific labor markets (e.g. market for nurses), oil prices, monopolies. Macro vs. Micro. Current Statistics.

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The Economic Approach

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  1. The Economic Approach Chapter 1 Week 1

  2. Macro Economy as a whole. growth of total output, inflation, employment. Micro Markets considered separately. Representative topics: specific labor markets (e.g. market for nurses), oil prices, monopolies. Macro vs. Micro

  3. Current Statistics U.S. GDP 13,755,900,000,000 Unemployment 4.6% Inflation 2.4% Growth 3.2%

  4. Rationality Assumption People have well-defined goals and try to fulfil them the best they can.

  5. Scarcity Principle No free lunch. Boundless needs and wants.

  6. Concept of Cost • Dollar costs (seen) • Opportunity costs (unseen) • Sunk costs (out of sight—forget about them!)

  7. Cost Benefit Principle An action is taken if marginal benefit exceeds marginal cost.

  8. Eight Principles • Scarcity implies that trade-offs must be made. • People engage in economizing behavior: their actions are guided by a cost-benefit calculation. • People respond to incentives. • Individuals make decisions at the margin. • Information is costly. • Secondary effects are important: “unintended consequences” • The value of a good is subjective. • The test of a theory is its ability to predict.

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