A.
Few important concepts concerned
1.
W_________
2.
S___________
It means
_________________ more than __________________ ;
the amount available is _________ than the amount people want at
ZERO price. (Do you know how the supply-demand diagram is like ?)
3.
C_________
4.
O_____________ ________
It is _________________________________________________
Remarks :
(a) Only the ________________ option forgone counts as a cost.
(b) Cost will change only if the ________________ option forgone changes.
(c) Whenever there is no __________ , there is no cost.
(d) Time itself is not a cost.
(e) Higher cost does not imply that one is worse off.
B.
Basic economic problems and methods to tackle those problems
1.
Problems
(a) W_______________________
(b) H_______________________
(c) For w_______________________
2.
Methods
(a)
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(b)
(c)
C.
Traditional definition
It is a study of the allocation of ______________________ to satisfy
____________________ .
1.
How do we cope with the fact that our wants cannot be satisfied with the vailable resources ?
2.
Give some examples of opportunity costs you incurred yesterday.
3.
What is production possibility curve (PPC) ? What economic concepts and ideas can be illustrate by using PPC ?
When we want more than we have, we have to _____________ for the use of scarce resources.
Forms of competition :
____________ competition
People who are willing to _______________________________________
____________________________________________________________
________________ competition
For example, _________________________________________________
Where there is competition, there is _______________ because competition is served to _______________ who gets what. Examples.
Remarks :
1.
Different forms of competition imply different rules of the game. The rules of the game serve to determine the ____________ and ___________ . When the rules of game change, the ____________ and ____________ will also change.
2.
____________ , ________________ and _________________ are
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inextricably tied together. Any one of them implies the other two.
A. Economics as a science
1.
Advanced definition
Economics is an empirical science trying to ___________ and
____________ human behavior by theorizing on the ______________ axiom.
Illustration :
Economists always build their theory on the self-interest axiom /postulate.
Thus, for their self-interest, it is no surprise to predict that a $500 note will be picked up immediately if left on the floor.
To achieve the above goal we have to distinguish 2 types of statements.
2.
Positive vs Normative Economics
(a) Economics as a science implies the Economics is positive, i.e., the economic theories aim at _____________ and _____________ human behavior, but not at saying what the right behavior is.
(b) Differences between positive and normative statements
(i) Positive statements concern __________________________.
Disagreement over them can be settled by an appeal to _______.
(ii) Normative statements concern _________________________.
Disagreement over them cannot be settled simply by an appeal to
_________.
(iii) The distincion between positive and normative economics allows us to separate our views on how the world ________
______ from our views on how the world ______________.
Identify the following into positive and normative statements.
(a) Smoking in enclosed public area should be banned.
(b) Prohibiting smoking in public area would reduce the demand for cigarettes.
(c) Proposed legislation to limit the smoking area would lead to opposition from the tobacco industry.
(d) Non-smokers’ rights to breathe clean air are more important than smokers’
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rights to pollute the air.
B. Steps to build a model / theory
1.
Observation and measurement
There is a basic belief that history repeats itself. There are ____________ in human behavior. Economists keep track of variables e.g. taxes and prices; economic growth and inflation rate, etc. so as to discover the
_______________.
2.
Making hypothesis
A hypothesis is a ______________ statement in the forms of :
‘If A occurs, then B happens.’ Or ‘ If A1, A2, ……, Ax occur, then B happens.’
E.g. If it is raining (A), there must be black clouds in the sky (B).
If a $500 note is left on the floor, and if there are no policemen around,
________________________________________.
3.
Testing
A model’s predictions may correspond to or be in conflict with the facts.
By comparing the model’s ______________ with the __________, we are able to test a theory.
Remarks :
- When prediction is in agreement with fact

the theory is said to be
_____________.
- We don’t say this theory is proved to be _____________.
C. Criteria of a good / useful theory
State whether each of the following is true or false.
A useful theory is one that
(a) is always true
(b) is not always true
(c) has the possibility of being false
(d) is not yet falsified (proved to be false) by facts
(e) is proved to be correct
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(f) is proved to be wrong
1.
A useful theory must be logically _____________, i.e., the implications actually follow the assumptions.
E.g. Given 3 options : A, B, C. If A is preferred to B and B is preferred to C, logical consistency requires A/C to be preferred to A/C .
2.
To be useful, a theory must be able to
- isolate the important variables that help to explain a given behaviour, i.e., a theory is a simplification of the complex reality.
- yield ______________ or _______________ implications.
3.
A useful theory must be ______________, i.e., it can be ______________ by facts but has not yet been ______________ .
If a statement is always true, it is a ________________ which cannot be falsified in all situations. It is meaningless as it explains nothing.
Exercise 4
Which of the following are tautologies ?
(a) If you fail in the AL examination. I’ll kill you.
(b) If you are late for school, you will be punished.
(c) If Mary is lucky enough, she will not die in the car accident.
(d) If the money supply increases, the national income will increase.
(e) If the government carries out appropriate policies, the inflation rate will be lowered.
(f) If the government cuts its expenditure by 10%, it can lower the inflation rate by
5%.
4.
A useful theory should have the power of generalization. Theories that lack the power of generalizations are _____________ theories.
5.
To be useful, it doesn’t matter whether it is real or unreal. The important thing is its ______________ and _____________ power.
6.
Variables in the theory must be _________________, so that the theory can be tested empirically.
7.
Great predictive power, not _______________ power.
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D.
Some common logical fallacies
1.
The fallacy of confirming the ________________
(I) If A is true, then B is true.
(II) B is true.
(III) Therefore, A is true.
We say B is true and try to argue from this to the truth of A. This is incorrect reasoning.
2.
The fallacy of denying the ___________________
(I) If A is true, then B is true.
(II) A is not true.
(III) Therefore, B is not true.
If A implies B, ‘not A’ implies nothing. ‘Not A’ surely doesn’t implies ‘not
B’.
E.
More on Economics
- The general proposition / axiom of economics is that people maximize subject to ______________ .
E.g. For consumption decision, constraints are individual’s ________ and
___________ of the goods consumed.
- When there is a change in _____________ , there will be a change in behavior.
E.g. When income increases, an individual’s demand for beefsteak
__________.

Economic predictions are made by examining changes in _____________.
***THE END***
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