z02 Economic Models Jpw

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http://www.arts.cornell.edu/econ/wissink/econ1110jpw/

Economic Models

Lecture 2Dr. Jennifer P. WissinkJanuary 26, 2014

2014 John M. Abowd and Jennifer P. Wissink, all rights reserved.


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Announcements (micro) Spring 2014

Make sure you are reading class announcements on Blackboard.

Get yourself set up on MELASAP.

First graded MEL quiz is assigned!

Please check the calendar that shows up on MEL for when it is due. Getused to checking there, please.

Make sure you READ theAnnouncementson Blackboardbefore startingthe 1stquiz. I describe some useful stuff to know about the MEL quiz setup.

Get out your i>clicker

Register it via our Blackboard page, ASAP.

I will be at my office (468 Uris Hall) from 2-5 today to field questionsall sorts. Stop by if you are having trouble with anything or have anyquestions or concerns.

Still not in the class? See Susan down front right after class.


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In The News

President Obamas State of the Union

speech is Tuesday (tomorrow) night.

Have a listen for all things microeconomics.

In The Super Bowl Ad Game, One SmallBusiness Will Win Big

http://www.npr.org/2014/01/24/265726096/in-the-super-bowl-ad-game-one-small-business-will-win-big


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i>clicker questions2.1 What year are you in?

A. FreshmanB. SophomoreC. JuniorD. Senior

E. Other

2.2 What part of Cornell?

A. Arts CollegeB. ILRC. CHED. CALS

E. Engineering

2.3 What part of US?

A. NortheastB. MidwestC. West CoastD. Southern East Coast

E. The South


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i>clicker questions2.3a What part of the

world?

A. CanadaB. EuropeC. Asia & Down Under

D. South&Central AmericaE. Africa

2.4 How much do you likeusing math outside ofmath classes?

A. LoveB. Hate

C. Dont love, Dont hateD. Dont know, well see

2.4a Are you a morningperson?

A. No!B. Yes!!C. Will be this semester


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Why Study Economics?

Its everywhere.

Its unavoidable.

Its a requirement and a prerequisite for

understanding lots of other material.

To help you understand how economiststhink and construct arguments.

To understand how markets work. To help you differentiate good from bad

analysis.


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On Modeling & Constructing Theories

Simplistic Model Construction Ockhams Razor

Evaluation of Models economics is a social science

Two pitfalls to avoid not recognizing the fallacy of composition

using post hoc ergo propter hoc logic

Positive vs. Normative analysis What isversus

What ought to be William of Ockham14thcentury philosopher


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A Road Map

Suppose I want to get you from here to Cortland.

How about we draw a map.


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One More Time

Economics: the study of

the allocation of

scare resources to

produce commodities to

satisfy infinite human wants.


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TheProduction Possibilities Frontier

Lets introduce theProduction Possibilities Frontier.

Better known as the PPF.

The PPF is a basic workhorse ineconomics.

Often introduced in the first couple oflectures in both micro and macro introcourses.


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The PPF: What Is It?

A description of the possible or feasiblecombinations of commodities aneconomy can produce, using all of theavailable resources efficiently.

Shows the trade-off between more of

one good in terms of another.


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The PPF: Assumptions

Given: endowments of resources

Given: technologies

Given: a fixed time frame

Given: efficient production


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i>clicker question 2.5Which one of the following would an economist classify as capital (K)?

A. An entrepreneur's $100 bill.B. The guitars used by the members in the band Fun.C. A corporate bond issued by IBM.D. Unfinished lumber purchased by a furniture manufacturer.


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The PPF: What You Get Typical teaching set-up:

Two final goods. Guns (G) and Butter (B)

Two input goods and final goods technologies.

So drop land for now, no big deal. Have Kapital (K) and Labor (L) that both go into making guns and

butter according to some known and given technology that can bedescribed by production functions.

G = g(K, L) and B = b(K, L)

PPF is a frontier that shows the maximum amount of one goodyou can produce given a fixed amount of the other.

Frontier is a graph.


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GUNS

K L Guns(tons)

2 0 02 1 1

2 2 2

2 3 3

2 4 4

2 5 5

Gun Production Data (Given) &The Gun Production Function


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Butter Production Data (Given) &The Butter Production Function

BUTTER

K L Butter(lbs)

1 0 0

1 1 21

1 2 30

1 3 37

1 4 39

1 5 40


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Guns & Butter & The PPF

GUNS

K L Guns(tons)

2 0 02 1 1

2 2 2

2 3 32 4 4

2 5 5

BUTTER

K L Butter(lbs)

1 0 01 1 21

1 2 30

1 3 371 4 39

1 5 40

THE PPF

Butter

(lbs)

Guns(tons)

Documents

z02 Economic Models Jpw