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DIGRESSIONS ARE 20% OF YOUR EXAMS 90% will be Positive Science (bro wtf is this math) Part 1 - Introduction Chapter 1.1: First Principles Notes Fields of activities Normative vs. Positive Science Microeconomics...

DIGRESSIONS ARE 20% OF YOUR EXAMS 90% will be Positive Science (bro wtf is this math) Part 1 - Introduction Chapter 1.1: First Principles Notes Fields of activities Normative vs. Positive Science Microeconomics 3  Economics as a Social Science Theories and models Microeconomics 4 Microeconomics 5  Digressions 1.1 Increasing Means or Increasing autonomy? Buddhism also treats with scarcity Western Economics: Deals with scarcity and how it can be alleviated by increasing the means, resources. We deal with scarcity by pointing outwards and finding solutions outwards. Freedom (west): Absence of external compulsion Freedom (buddhism): Autonomy from the dictatorship of desires Buddhism: Points inwards, overcoming the wants to make the match the means. 1.2 Generosity for Nerds: Opportunity costs and Donations You can donate more if you get a high paying job at a bank than working for a small salary at a charity. Charities have so much money when disasters happen, they don’t know what to use it for. The marginal utility of each franc donated decreases 1.3 Homo Oeconomicus Microeconomics 6  Individual behavior needs a decision theory that allows for predictions Revealed preference approach - Individuals behave as if they maximized their utility function. Individuals can rank alternatives and their preferences The ranking and stable over a sufficient period of time The ranking is complete (I can rank any two alternatives) The ranking is transitive (If i prefer broccoli to potato and potato to ice cream, then I prefer broccoli over ice cream) Individuals always choose the best alternatives available for them. Misunderstanding: Homo oeconomicus is a selfish actor. 1.4 Transcending Reason Language is only limited in expressing the reality of the world. Necessary dogma for any scientific project Spiritual traditions claim that some truths can be assessed by means other than scientific reasoning. Questions What is Economics? The study of how society manages its scarce resources. What is a Theory? A reasonable conjecture about the functioning of some aspect of the world. What is reasonable? A consensus among scientists about acceptable methods and procedures What are the three levels of study? Microeconomic level “How do people behave under conditions of scarcity” Interaction level “How do people/firms interact” Macroeconomic level “How does the economy function as a whole?” What are Normative theories? Microeconomics 7  Theories that make prescriptions about what people should do under certain circumstances. They, therefore, rely on a value judgement. What are Positive theories? Theories used to explain a phenomenon and contain no value judgements. Statements about “what is” are also called descriptive. What is Positive Economics? Tries to explain how people deal with the phenomenon of scarcity What are the three levels of social phenomena analysis? Individual level? Interaction level? Aggregate level? What is scarcity? Situation where wants exceed the means. What is a model? A collection of assumptions and hypotheses that are linked by the rules of logic and mathematics. What is infinite regress In never ending process every proof requires further proof i.e., every proposition requires a proof, which is given in form of a proposition which in turn, again, requires a proof. What are the three types of propositions? Analytic - “2 + 2=4” can be right or wrong according to internal standards. Synthetic - “The bottle is blue”(existential quantification) “All swans are white”(universal quantification); can be right or wrong according to external standards. Normative - “This coffee tastes good” “equality is just”; can be right or wrong according to some evaluative standard. What is a Paradigm? A set of practices that defines a scientific discipline at any particular period of time. For economics, rational choice and methodological individualism are important parts of it. Microeconomics 8  What is positive economics? Tries to explain how people deal with the phenomenon of scarcity What is circularity_ The statement and proof support each other, maybe in a complex chain of arguments. ˆ eg: Flawed interpretation of the theory of evolution that defines the species that fits best in an environment as the one that survives, and the one argues that the species one observes must fit best into its environment. What is Ockham’s razor? A concept which states that among competing models the one with the fewest assumptions should be selected. What is Macroeconomics? The study of the economic phenomena at the aggregate level. What is Microeconomics? The study of individual decision making at the individual level and interaction level. What is opportunity cost? next best alternative forgone of one’s choice. What is methodological Individualism? Scientific position that requires that all social phenomena be explained with reference to individual behavior. Widely regarded position among economists, according which ultimately all phenomena, which are studied on the aggregate level, need to be tracked back to patterns of behavior on the individual levels. What is the premise of the Munchhausen trilemma? There is only three satisfactory ways to deal with the fact that scientific reasoning requires that proof is provided for every proposition. In the end, only infinite regress, circularity, or dogmatism can deal with this situation. What is critical rationalism? Scientific theories can never be verified but can, in principle, be falsified by bringing in empirical evidence that is in conflict with the hypotheses of the Microeconomics 9