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Economic Principles
Economic Principles
Optimization
Equilibrium
Empiricism
The First Principle of Economics:
Optimization (*)
How many laps would
you jog (walk) a week?
1. none
2. 10 or less
3. 30
4. 50 or more
Optimization
Determinants of your
(optimal) choices?
Benefit/Opportunity cost
1.3 The First Principle of Economics: Optimization
Trade-offs and Budget Constraints (*)
1. 1,118.
2. 0.
Hours 20 30 40 50
1 2 3 4
Optimization for part-time job
Hours 20 30 40 50
1 2 3 4
Optimization
Optimization
Optimization
Optimization
Difficulties in optimizing rise from
Information deficit
Inability
Inexperience
1.$1,500 2. $1,000
@University Rd. @YongKong.
1.$33,000 2. $32,500
@University Rd. @YongKong.
The Second Principle of Economics:
equilibrium
Is this an equilibrium?
1.Yes
2.No
equilibrium
In equilibrium, every
economic agent
is optimizing
will not benefit
from changing their
own behavior
Equilibrium is stable
and more
meaningful for
analysis and
comparison.
1.4 The Second Principle of Economics: Equilibrium
Is this an equilibrium?
1. Yes
2. No
Crowded beaches
and hot temperatures
go together.
Buttercup
Speaking of Harvard
dropouts
1. College education is
not helpful
2. Argument by Anecdote
2015 Pearson Education,
Ltd.
2.1 The Scientific Method
An Economic Model
Evidenced-Based Example:
Assumption:
one more year of education results in a
10% increase in future earnings (why?)
4 more year results in a 46% increase,
why not 40%? 2015 Pearson Education,
Ltd.
2.2 Causation and Correlation