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

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cia4u analyzing current economic issues

CIA4U: Analyzing Current Economic Issues

Course Introduction and Basic Definitions

the economic dilemma
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
economics is a social science
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
important economic ideas
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
two branches of economics
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
two branches of economics1
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
economic fallacies
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
fallacy of composition
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
fallacy of composition1
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?
post hoc cause and effect fallacy
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)
post hoc cause and effect fallacy1
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?
fallacy of single causation
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
fallacy of single causation1
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