Thinking like a economist

This Cobb-Douglas algebraic form still stands for a whole family of Thinking like a economist production functions.

That is worth explaining enough for us to digress down another level: The level of technology or efficiency of the labor force, written E. At best people can form rational and reasonable expectations of what the future might be.

And I do not understand how universal bankruptcy can do any good or bring us nearer to prosperity Moreover, you can just as easily move back in the other direction, by thinking of a curve in terms of the equation that generates it.

That economics is done by building models—abstract algebraic structures that serves as a map between what we know about the structure of the economy—resources, capabilities, preferences, technologies, markets and institutions—and what economic outcomes might be.

This behavioral relationship states how the effect the Thinking like a economist level of production is related to the cause the available capital stock. People are, after all, only human. Specifically, an algebraic equation relating two variables can also be represented as a curve drawn on a graph.

And it has developed as an abstract social science. But there are fundamental steps that almost every successful construction of a macroeconomic model follows. It is easy moving back to the specific when you want to consider a particular case with a particular set of parameter values.

At that time stock ownership was confined to the rich. Understanding opportunity cost can help those who want to think like an economist to decide, for example, Thinking like a economist going to graduate school is worth the cost.

You probably think that to the extent that it works, it works more or less like chemistry, though it does not work as well. Conditions of economic equilibrium become dots where curves describing two behavioral relationships cross and thus both behavioral relationships are satisfied.

Given the current efficiency of labor, the production function is What is the equilibrium? Recall from Chapter 2 the rule of thumb for calculating the growth rate of a quantity raised to a power: Its subject is not electrons or elements but human beings: Once again, start with the behavioral relationship: This function a is easy to calculate or look up for particular cases, b is one with which we have a lot of experience, c is an increasing function so it fits the intuitive requirement that more capital is usefuland d is a function with diminishing returns—the higher the capital stock, the less valuable is the next investment in expanding the capital stock still further.

But this abstract form does not specify the particular form of this systematic and predictable relationship.

What it Takes to Think Like an Economist

Behavioral relationships become curves that shift about on a graph. One simplification that economist often make—especially macroeconomists, but also, albeit much more rarely, microeconomists—is that all participants in the economy are the same or, rather, that the differences between businesses and workers do not matter much for the issues macroeconomists study.

They get weird indeed. Diagrams allow for qualitative if not quantitative predictions. If you keep your wealth in the form of easily spendable cash, you pass up the chance to keep it earning interest in the form of bonds.

If we knew the coefficient values and had a steady hand, we could solve for the balanced-growth value of output per worker simply by finding the point on the graph where the curves cross, and reading off the x-axis and y-axis values.

Now back to the main narrative thread Economists tend to consider three types of expectations: The Great Depression happened in large part because people expected something bad to happen.

Recall that exponents greater than 1 are a means of repeated multiplication.

In either case, the capital-output ratio will converge to its balanced-growth equilibrium level over time. If you are not comfortable with analytic geometry, then you need to find other tools to help you think like an economist. We can use algebra. If the behavioral relationships are not satisfied, the relationships are not behavioral.

Thus this balanced-growth capital-output-ratio equation satisfies the two requirements for being an equilibrium condition. Thus a lot of features that economists would like a sensible behavioral relationship between the capital-labor ratio and output per worker to have are already built into the Cobb-Douglas production function.

It does not work as well because economic theories are unsettled and poorly described. The proportional rate of growth of the labor force, written n. Alternatively, an economist could write the production function in a particular algebraic form, for example, the Cobb-Douglas form which is convenient to use: To understand this complex phenomenon, they restrict their attention to a few behavioral relationships—cause-and-effect links between economic quantities—and a handful of equilibrium conditions—conditions that must be satisfied for economic activity to be stable and for supply and demand to be in balance.

The American economy is complex:Thinking like an economist can seem like a skill limited to solving problems of the marketplace, but this type of thinking can be applied in many areas outside the field of economics.

Thinking like an economist can help avoid irrational decision-making, can aid professionals in improving the decisions that affect their lives and can help you better understand the world around you.

discusses the field’s methodology. What is distinctive about how economists con-front a question? What does it mean to think like an economist? Learn chapter 2 quiz economics thinking like an economist with free interactive flashcards.

Choose from different sets of chapter 2 quiz economics thinking like an economist flashcards on Quizlet. Thinking like an Economist: A Guide to Rational Decision Making is rated out of 5 by Rated 5 out of 5 by BrianInDC from Great Professor, Great Content I received this course as a gift, and I can honestly say it's one of the best Great Courses I've seen (and I've seen quite a few).

Thinking Like an Economist: Each chapter concludes with a summary openly addressing how an economist would look at the issue. This approach helps readers envision not just the significance of choosing economics as a major, but also identifies what economists do on a daily basis, and why their work is $ To explain the inner workings of an economist's brain would seem an impossible and thankless task, especially if journalists—skeptics by training—are the audience.

The stereotypical economist, after all, is more enamored of theory than reality, unable to reach conclusions and boring beyond all words.

Thinking like a economist
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