Note of Macroeconomic Course

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Chapter I: Economics: foundation and models

Scarcity: A situation in which unlimited wants exceed limited resources available to fulfill those wants.

Human wants are unlimited, but resources (such as time) are not. So people must make choice as they pursue their goals.

Economics: the study of the choices people makes to obtain their goals given their scarce resource.

1.1~Three key economics ideas
1.2~The economic problem that every society must solve.
1.3~Economics models
The scientific method is the dispassionate development and testing of hypothesis about how the world works. Economists are social scientists who apply the scientific method to the study of interactions among individuals.

Economic model: A simplified version of a reality used to analyze real-world economics situation.

Like other scientists, economists use models, such as diagrams and equations, to answer questions about the real world.

Economics models are often based on unrealistic assumption that simplifies the problem at hand without substantially affecting the validity of the answer.

No one model can address every important topic, so we will learn different models as we learn different topics.

Positive analysis: An analysis concerned with what it is.

Positive statement can be evaluated as true or false using data.

Example: “After spending cameras were installed on I-380. The average spend of motorists decreased.”

Normative analysis: Analysis concerned with what it is ought to be.

Normative statements involve personal values as well as facts, so they cannot easily be evaluated false or true.

Example: the government should install additional speeding cameras on I-380.

! We focus on positive analysis.


Economics is studied on two levels:
Microeconomics: The study on how households and firm makes choices, how they interact in markets, and how the government attempts affect their decisions....
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