Intro to Economic Concepts•Macro vs. Micro

•Positive vs Normative Analysis

•Why do economists often disagree?

Microeconomics

• Micro looks at individual operations of businesses and consumers

• Also deals with how businesses, government and consumers interact– Think: ECONOLAND

Macroeconomics

• Macro looks at how economies as a whole function; a study of economy-wide phenomena.– Think: Inflation, unemployment, interest rates,

taxation, trade deficit, national productivity rates, national savings rate, etc.

Classify the following: a family’s decision about how much income to save

– MICRO the effect of government regulations on auto

emissions– MACRO

the impact of higher savings on economic growth– MACRO

a firm’s decision about how many workers to hire.– MICRO

The relationship between the inflation rate and changes in the quantity of money.

– MACRO

Economic Statements can be described as either Positive or Normative

• Positive Economic Statements explain the way things are.

• Factually based statements

• Can be proven true or false based on objective evidence– Example: Low interest rates lead to a decline

in savings by households

Normative Economic Statements

• Describe how the world ought to be.

• Normative analysis involves values and judgment calls (Subjective Analysis).– For example: Interest rates should be kept

high to encourage saving.

Positive or Normative?

• State governments should be allowed to collect from tobacco companies the costs of treating smoking related illnesses among the poor.

• Normative

• Higher federal budget deficits will cause interest rates to increase.

• Positive

Positive or Normative?

• Society ought to require welfare recipients to look for jobs – Normative

Economists tend to often disagree• Positive economic analyses can be criticized for their

scientific validity, just as scientific analysis in other fields.– Think: Global Warming!

Normative Analysis involves ideas about values, and religion, including ideas about fairness and human nature.

- These can be argued without end!

“Just once, I’d like to meet a one armed economist.”

Harry Truman

Economics involves Tradeoffs!!

Ten Propositions about Which Most Economists Agree

Copyright © 2004 South-Western

Okay, so here is a hot topic… Positive or Normative?

• An increase in the minimum wage will cause a decrease in employment among the least skilled and experienced workers.

• The income gains from a higher minimum wage are worth more than any slight reduction in employment

If economists tend to look down upon minimum wage…why do

politicians favor it?

Against

Both are for it

Wants to index it

What should we do?

• Research!

• Minimum Wage research assignment and essays due Monday, February 7.