Lecture 1
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Lecture 1. Art of the Economic Argument. Methodology of Economics. Definition of economic issue or question May or may not be refutable Normative question: Not refutable The income distribution of Norway is superior to Canada Canada’s income distribution is inferior to USA

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Lecture 1

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Lecture 1

Lecture 1

Art of the Economic Argument


Methodology of economics

Methodology of Economics

  • Definition of economic issue or question

    • May or may not be refutable

    • Normative question: Not refutable

      • The income distribution of Norway is superior to Canada

      • Canada’s income distribution is inferior to USA

      • What standard would you use to measure income distribution? Mean, Medium, ?

      • What is your prior ?

        • More (less) unequal is (better) (worse)


Methodology of economics continued

Methodology of Economics Continued

  • Positive Economics

    • Price increase always leads to a quantity decrease

    • Model: Consumer Utility maximization

      • Axioms

        • More is preferred to less

        • If only two goods they must be substitutes

        • A rise in income then the demand for one or both goods must rise.

        • No saving


Some questions normative or positive

Some Questions: Normative or Positive ?

  • Is globalization Good?

  • Is child labour good?

  • Is Free Trade Good?

  • Appreciation of home currency reduces exports

  • Which of the above questions are normative and why?

  • How would you go about answering them?


Methodology of economics continued1

Methodology of Economics Continued

  • Propositions

    • U=F(X1, X2 …………..Xn)

    • S.T. Y= P1 X1 +P2 X2 +…….Pn Xn

      Deduction:

      Given Axioms and Propositions:

      Delta Q /Delta P <0

      Or Demand curve is downward sloping.


Proof

Proof

  • Use data and approriate statistical technique

    • Price of salmon fell from $5.00/kilo to $1.00/kilo

    • Estimate own price elasticity of demand

      • -2.0

    • How much quantity is consumed at $1.00 in elasticity is =-2.0

    • 10 times as much as at $5.00.

    • Is this true?


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