CIA4U: Analyzing Current Economic Issues

1. CIA4U: Analyzing Current Economic Issues Course Introduction and Basic Definitions

2. The Economic Dilemma • Our financial and material wants are (basically) unlimited • Unfortunately, the resources we need to acquire those wants are limited (money, time, energy etc.) • In economics, we would say our resources are scarce • We need to make the “best use” of our available resources to satisfy our wants as much as possible • We must economize, use our resources wisely • Economics is the study of how people choose to use their scarceresources

3. Economics is a social science • Science – follows a standard method to explain economic behaviors • There are economic laws/theories/rules that are accurate models of reality (just like laws in Physics or Chemistry) • Social Science – Human behavior is often difficult to predict at the individual level. Social sciences provide models that predict tendencies of humans as a group

4. Important Economic Ideas • In choosing how to use our scarce resources, we need to be both effective and efficient • Effective use: the resources we use achieve our desired goal • Efficient use: we used the bare minimum of those resources to achieve the desired goal • The economic imperative is to be effective AND efficient in our use of scarce resources

5. Two Branches of Economics • Analytical – deals with facts through direct observation of behavior (analysis) • Describes how things were in the past • Unemployment in Canada dropped to 6% since March 2012 • Can be verified by looking at the numbers (fact) • Makes conditional predictions of the future (“if/then” statements) • If interest rates are lowered, thenborrowing will increase • Prediction can be tested (and supported or rejected) by observing borrowing trends after interest rates have gone down

6. Two Branches of Economics • Normative – what choice “should” be made, based on people’s values • “Canada should decrease economic relations with China to pressure the government to establish fair labour laws for Chinese workers” • This economic statement is opinion, and cannot be verified by looking only at facts

8. Economic Fallacies • Fallacy – a hypothesis that has been proven false, but is still accepted as truth because it appears to make sense • Fallacy of Composition • Post-Hoc Fallacy • Fallacy of Single Causation

9. Fallacy of Composition • The assumption: If something is good for an individual, it will be good for society in general • The reverse assumption: if something is good for society, it will be good for an individual • These assumptions are WRONG

10. Fallacy of Composition • What is good for the individual is not automatically good for society • Individual benefit does not equal societal benefit • Examples… opening a market to international competition • Why do we think this?

11. Post Hoc (Cause and Effect) Fallacy Post hoc ergo propter hoc - “after this, therefore because of this” • Assumption: because event B happened after event A, it must mean that A caused B to happen • A happened, then B happened • Therefore, A must cause B • Examples (political attack ads)

12. Post Hoc (Cause and Effect) Fallacy • WRONG! • There may be NO link between the two events at all; could be coincidence • A rooster crows every morning before sunrise and crows. Afterwards, the sun rises • Is the rooster causing the sun to rise?

13. Fallacy of Single Causation • Assumption: A single person, event, or factor caused a particular event to occur • Example: The stock market crash in 1929 caused the Great Depression of the 1930’s

14. Fallacy of Single Causation • Most significant events have many contributing factors, which on their own might not have been enough to cause the event • Why do we think this? • Other Examples